Dear Coverage Pointers Subscribers:

You have a situation?  We love situations.

I bring you greetings from Scottsdale where the temperatures have finally returned to a normal range.  This past weekend, it was 28 in Scottsdale and 58 in Buffalo.  Something’s wrong with that picture, for sure!’

 

Format Change:

We asked, you answered, we listened.

As of this issue, we are providing live links to reported decisions, using sites that should be stable for years to come.  These are direct links to the appellate sites, not secondary linkages.  Accordingly, we will not be providing the full text of decisions within the issue on a going forward basis, except upon request (when the full text will be gleefully provided). 

Every rule has an exception, and we have one.

We will continue to include the full text of very significant or interesting decisions at the end of the issue, in addition to the live links.  For example, in this edition, you will find the full text of QBE Ins. Corp. v Jinx-Proof Inc., discussed below.

 

The NY Rule on Reservation of Rights Letters in NY:  Avoid Them!

Those of you who know and love (or dislike) New York coverage law know my mantra on this subject.  Reservation of Rights letters, used in virtually every civilized jurisdiction, are not welcomed or readily respected by New York courts and their use in coverage letters involving casualty policies can lead to a waiver of the right to rely upon exclusions and policy breaches.  That rule applies in bodily injury and wrongful death cases involving NY—issued policies and NY accidents, all courtesy of Insurance Law Section 3420(d)(2).

In New York, insurers who follow best practices do not use ROR letters but instead, unequivocally deny coverage on causes of action where coverage is not provided.

If you don’t believe me, believe the First Department’s January 17th opinion in QBE Ins. Corp. v Jinx-Proof Inc. which is highlighted in my column.  An assault case, the insurer had to defend the insured because of collateral negligence allegations.  The court did not like the insurer’s ROR language.  However, the insurer smartly, on the assault and battery claims, used absolute denial language that was clear enough to save the carrier from losing its right to disclaim.  Still, three opinions were rendered by a five judge panel.  It is a good case to read and the case presents good rules to remember.

The Coverage Pointers App:

The COVERAGE POINTERS APP is available in the iPhone App Store and the Android Marketplace, for free, of course. Search for it there or for iPhone or iPad users, click here.

 

Liening Tower of Perley

Congress is beginning to take steps to address the confusion surrounding the Medicare Secondary Payer Act.  In a bill that is subtitled Strengthening Medicare Secondary Payer Rules, the federal government changed the mandatory $1,000 per day penalty for an insurance company’s failure to report, to when they “may be” imposed.  While I applaud Congress’ recognition of the difficulties faced by insurance companies, it hardly seems to me that strengthened the Medicare Rules.  It makes you wonder how they come up with the names for these bills.  A more thorough analysis of the so called SMART Act (H.R. 1845) is contained in this week’s edition.

Michael F. Perley
[email protected]

Book Reviews:

Just finishing Steven King’s 11/22/63, a good read.  The plot involves a fellow who is introduced to a time bubble that allows him to return to the past and is given the mission to stop the assassination of President Kennedy.  It’s 50 years, this year, since that tragic day.  Amazing.

In the presidential biography marathon, we have completed Lincoln (having previously read a number of great and not-so-great biographies, including the wonderful Team of Rivals) and have moved onto President Andrew Johnson.

Speaking of JFK and Andrew Johnson, many who grew up when I did read Kennedy’s famous 1957 Pulitzer Prize winning book, Profiles in Courage, which provided biographies of eight United States Senators who engaged in acts of political courage and integrity and often crossed party lines to do so.  I am reading a book by one of those individuals profiled: Edmund G. Ross.

Who was Senator Ross?  He was the Republican Senator from Kansas who cast the deciding vote to acquit Andrew Johnson in his impeachment trial in 1868.  Johnson, a Democrat, avoided conviction by one vote, and Ross’ book, written in 1896, describes the impeachment by the House and trial in the Senate in fascinating detail:  History of the Impeachment of Andrew Johnson, President of the United States, by the House of Representatives, and his trial by the Senate for high crimes and misdemeanors in office.  Great period piece.

 

Expert Witness Services:

I recently completed my service as an expert witness in a bad faith claim here in Arizona.  If we can provide counsel or advice for you or your company in matters involving coverage or extra-contractual liability, let us know.

 

Audrey’s Angles:

There are only 25 days, and counting, until Baby Seeley is due to enter this world.  I am as ready as you can be for him knowing that any best laid plan will be thrown out the window once he arrives.  However, I am hoping that my litigation skills will kick which have taught me to develop a strategy and adjust it along the way as needed.

I recently had a client contact me with a question about the viewpoint of arbitrators regarding whether palliative care is medically necessary.  This edition there is an informative arbitration decision from Arbitrator Benziger on the standard he applies when determining whether palliative care is medically necessary.  Much can be learned from this decision from both sides as to what a treating physician or chiropractor needs to document and discuss when faced with an individual who is treating with one specialty for an extended period of time.  There is also a rare decision upholding an insurer’s denial of a spine surgery.  Generally, surgery cases are difficult for an insurer to prevail in but it appears in this case the evidence submissions may have been the deciding factor.

While I cannot physically go out to conduct a training session right now, one of our team members can, so if you have any particular needs please let us know.  Otherwise, you can always contact me with a no-fault question, a PIP loss transfer question, or just to say hello, at [email protected].  

Audrey

 

PLRB Claims Conference:

Are any of you attending the PLRB Claims Conference in Boston over St. Patrick’s Day?  If so, have you signed up for my presentation on AI status and indemnity agreements?  I hope so!

 

Inaugural Balls:

On January 21st, President Obama will attend two inaugural balls, the smallest number since President Eisenhower’s 1953 inauguration.  We thought that you might be interested in the history of these events.

The first inaugural ball was held by sponsors on May 7, 1789 in New York City, one week after the first inauguration of George Washington.  In 1809, Dolley Madison hosted a gala at Long's Hotel in Washington D.C. after her husband was sworn in earlier in the day as the fourth President.  A total of 400 tickets were sold for $4 apiece.

In 1833, two balls were held for the second inauguration of Andrew Jackson.  Jackson, by the way, whose second term ended in 1837, was the last president to be elected to a second term until Lincoln was reelected in 1864 and Old Hickory was the last president to complete a second term until U.S. Grant did so in 1877.  In 1841, a third ball was added for the inauguration of William Henry Harrison (the ball lasted almost as long as his presidency, he having died a month into his term). In 1865, a ball was held for Lincoln’s second installation in the US Patent Office and Grant’s first inaugural ball was held in the Treasury Building.

Presidents have cancelled inaugural balls for various reasons. Franklin Pierce was mourning the recent death of his son in 1853, Woodrow Wilson felt that inaugural balls were too expensive, and Warren Harding, in 1921 wanted to set an example of simplicity and opted to end the custom of inaugural balls.  Jimmy Carter charged just $25 for his official ball.

Official inaugural balls were not reinstated until the second inauguration of Harry S Truman in 1949.   Eisenhower had four balls; his wife’s dress, a pink peau do soie with 4000 rhinestones, can be seen in the National Museum of American History, by the way, along with many others.

Then the number of balls started to skyrocket.  Bill Clinton’s second inauguration was marked by 14 and George W. Bush had nine for his second inauguration.

President Obama has announced that due to budgetary concerns, he is limited the number of official balls to two, the lowest number in 60 years.  Some 35,000 are expected to attend and Smokey Robinson (famed from Smokey Robinson and the Miracles), Stevie Wonder and others are entertaining there.

So, what does history teach us about the balls (with thanks to T.S. for editorial assistance):

  • George Washington had one, but was still the father of our country;
  • John Madison’s wife charged $4 for his and several hundred rejoiced;
  • Andrew Jackson, our seventh President, had two, was a beloved President with a sense of bravado and loved by his constituents;
  • William Henry Harrison added a third and died a month into his term;
  • Franklin Pierce had none and, perhaps coincidentally, was an ineffective President;
  • Woodrow Wilson placed no value in having his, and couldn’t achieve peace in his time;
  • President Eisenhower had four and Mamie liked Ike;
  • Jimmy Carter charged peanuts for his;
  • Bill Clinton had more than any other President and surely relished his;
  • Barack Obama only has two, but he will be surrounded by both a Miracle and a Wonder and a very delighted Michelle.

 

One Hundred Years Ago Today – New York Arson Ring Snuffed:

Indianapolis Star
January 18, 1913

INDICT THREE FOR ARSON,
RESULT OF "BUG'S" EXPOSE

New York Grand Jury Learns Methods of "Trust" in Confession of Convict

NEW YORK, Jan, 17.—The indictment of three men as alleged incendiaries and the arrest of one of them, Robert J. Rubin,a fire insurance adjuster, were developments today in the district attorney's prosecution of the "arson trust," described by Isidor Stein, the convict known as "Izzy, the Painter." Stein was brought from Sing Sing Prison to aid the state.

The district attorney's office declares "lzzy" accused Rubin of canvassing the city from house to house and arranging with insured persons to have their property set on fire. “Izzy" became the firebug at Rubin's direction, according to the former's statement.

An abstract of "Izzy's" confession, made public by the district attorney, says:

The average amount paid to him for a fire was between $25 and $5O, and he set about one or two each week. Stein states that the public adjusters would frequently shake down the Insured, taking advantage of the situation and collect anywhere from 50 to 60 per cent of the amount the Company paid. In numerous cases good furniture and good clothing were taken out of the flat and old furniture, and in three cases burned furniture and old clothes were substituted.

Editor’s Note:  According to a February 21st article in the Middletown Daily Times Press, the jury took just 10 minutes to convict Mr. Rubin of Arson in the Second Degree. A June 4th article reported that he was sentenced to six to 10 years in Sing Sing.  His conviction was affirmed by the First Department in April 1913 and the Court of Appeals in January 1915.

 

Raising a Finger for Distress:

With thanks to loyal subscriber John Buckley from Western National who forwarded this from a mailing received from www.thelaw.net, a reference to what was dubbed, “the best footnote of 2013” from Swartz v. Insogna, a Second Circuit decision handed down in January:

“'An irate automobile passenger’s act of giving the finger, a gesture of insult known for centuries, to a policeman has led to a seizure of two persons ordered to return to an automobile, an arrest for disorderly conduct, a civil rights suit, and now this appeal.'   State Liquor Authority, 134 F.3d 87, 91 n.1 (2d Cir. 1998) (reporting the use of the gesture by Diogenes to insult Demosthenes). Even earlier, Strepsiades was portrayed by Aristophanes as extending the middle finger to insult Aristotle. See Aristophanes, The Clouds (W. Arrowsmith, trans., Running Press (1962)). Possibly the first recorded use of the gesture in the United States occurred in 1886 when a joint baseball team photograph of the Boston Beaneaters and the New York Giants showed a Boston pitcher giving the finger to the Giants. See Ira P. Robbins, Digitus Impudicus: The Middle Finger and the Law, 41 U.C. Davis L. Rev. 1403, 1415 (2008)."


As for the merits:

“Perhaps there is a police officer somewhere who would interpret an automobile passenger’s giving him the finger as a signal of distress, creating a suspicion that something occurring in the automobile warranted investigation. And perhaps that interpretation is what prompted Insogna to act, as he claims. But the nearly universal recognition that this gesture is an insult deprives such an interpretation of reasonableness. This ancient gesture of insult is not the basis for a reasonable suspicion of a traffic violation or impending criminal activity. Surely no passenger planning some wrongful conduct toward another occupant of an automobile would call attention to himself by giving the finger to a police officer. And if there might be an automobile passenger somewhere who will give the finger to a police officer as an ill-advised signal for help, it is far more consistent with all citizens’ protection against improper police apprehension to leave that highly unlikely signal without a response than to lend judicial approval to the stopping of every vehicle from which a passenger makes that gesture.”

 

One Hundred Years Ago Today:

David Daniel Kaminsky, band leader, actor and comedian was known to millions as Danny Kaye, was born one hundred years ago today.

Headlines in This Week’s Issue:

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

  • Disclaimers are Good, Reservations of Rights are Evil; A Good Review of the New York Rules
  • Contents of Admitted Police Report Established Ownership of So-Called Hit-and-Run Vehicle, Leading to Denial of Uninsured Motorists Benefits
  • Claim that Company was No Longer Exclusive Agent to Sell Health Supplement Products Constituted Disparagement Claim for Which Defense Must be Provided Under Personal and Advertising Injury Coverage
  • Where Policyholder Requests Specific Coverage and Policy is Delivered Without It, Failure of Insured to Read the Policy for Nine Months and Notice Coverage Not Provided is Not a Complete Defense to the Claim
  • “Premises Occasionally Rented to Insured for Business Purposes” is Ambiguous as “Occasionally Rented” is Undefined; Questions of Fact of Notice to and by Carrier
  • Disclaimer Served 20 Days after Notice Would be Timely; Questions of Fact as to Whether Insurer Received Earlier Notice
  • Twenty Day Limitation Period to Move to Stay Uninsured/Underinsured Motorists Arbitration Begins to Run with Demand for Arbitration
  • Framed Issue Hearing Required on Disputed Facts on Physical Contact in Uninsured Motorist Claim of “Hit-and-Run”
  • Owner Does Not Qualify as AI under Sub’s Blanket AI Endorsement. Blanket Additional Insured Endorsements Mean What They Say:  In Order to Qualify as an AI, a Party “You” (The Named Insured”) Must Have Agreed in Writing with the Party Seeking Status to Be So Named
  • Intra-Insured Exclusion is Inapplicable; Court Correctly Assesses Priority of Coverage

 

MARGO’S MUSINGS ON SERIOUS INJURY UNDER NEW YORK NO FAULT
Margo M. Lagueras

[email protected]

  • Upon Motion to Renew, Plaintiff Submits Affidavits Attesting to the Truth and Accuracy of Unaffirmed Reports
  • Plaintiff’s Default Is Vacated and Defendants’ Motion Denied
  • Defendants Fail to Meet Burden with Respect to Claimed Injury to Right Wrist
  • Deposition Testimony that Home Confinement Lasted Only One Month Defeats Claims under 90/180-Day Category

 

AUDREY’S ANGLES ON NO-FAULT
Audrey A. Seeley

aas@hurwitzfine.com

ARBITRATION

  • Insurer Prevails On Surgical Denial
  • Drug Impairment Exclusion Applied To “Adverse Reaction” To Prescription Medication
  • Applicant Failed To Demonstrate Chiropractic Care Palliative

 

LITIGATION

  • Failure to Rebut Peer Review Results In Summary Judgment For Insurer
  • Insurer’s Denial Not Nullity for Failure to Issue in Duplicate
  • Insurer Loses Policy Defense When Could Not Demonstrate EUO Letters Timely Issued

 

LIENING TOWER OF PERLEY
Michael F. Perley

[email protected]

  • Smart Act Modifications to Medicare Secondary Payer Rules

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper

[email protected]

Property

  • Passive Participation in the Manufacturing Process Results in “Manufacturer” Status for Insured
  • With Proof of Knowledge, or Justifiable Reliance, Fraud Claims against Title Insurer Fail

 

Potpourri

  • Signed Release and Signed Settlement Agreement Does Not Resolve Case Where Acceptance of Offer was Not Transmitted to the Carrier

 

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]

  • Assembly Bill A-2287 - The Homeowners Bill of Rights
  • Assembly Bill A-1092 - Prompt Processing of Claims

 

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal

[email protected]

  • New York Court of Appeals Accepts Certified Question on 1/15/13
  • Is Third Party Contractor Entitled to Receive Benefit of Liability Limitation
  • Homeowner’s Insurer Has No Duty to Defend or Indemnify for Lost Data

.

KEEPING THE FAITH WITH JEN’S GEMS
Jennifer A. Ehman
[email protected]

  • Computer Systems Fraud Rider Not Triggered Where Fraud Resulted from the Contents of Medicare Provider’s Claim, Not the Misuse or Manipulation of the Computer System
  • No Coverage Where Lead Paint Ingestion Occurred Prior to Policy’s Retroactive Date
  • Where Insured Deemed Not Negligent, No Additional Insured Coverage; Acts or Omissions Language in Additional Insured Endorsement
  • New York Bad Faith Update

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

  • To Appeal or Not to Appeal, That is the Question

 

See you in a couple of weeks.
Dan

Dan D. Kohane
Hurwitz & Fine, P.C
.
1300 Liberty Building
Buffalo, NY 14202    
Phone: 716.849.8942
Fax:      716.855.0874
E-Mail:     [email protected]
Website:   www.hurwitzfine.com
LinkedIn: www.linkedin.com/in/kohane

 

Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York

NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

ASSOCIATE EDITOR
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]  

INSURANCE COVERAGE TEAM
Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Katherine A. Fijal
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Diane F. Bosse

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Andrea Schillaci, Team Leader
[email protected]

Jody E. Briandi
Steven E. Peiper

NO-FAULT/UM/SUM TEAM
Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
 

Scott M. Duquin
Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Margo’s Musings on “Serious Injury”
Audrey’s Angles on No Fault

Liening Tower of Perley
Steve on Sandy, Peiper on Property and Potpourri

Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Earl’s Pearls
Across Borders

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

01/17/03       QBE Insurance Corporation v. Jinx-Proof, Inc.
Appellate Division, First Department
Disclaimers are Good, Reservations of Rights are Evil; A Good Review of the New York Rules
This is the one must read decision of the issue and as a result, we are linking to it above and including it below.  It is very instructive and deals, quite well, with the NY rule that provides that reservation of rights letters are relatively worthless in New York.  A carrier that wants to deny coverage, even when it has to defend other causes of action, must do so in unequivocal language.  Here, the carrier did just what it had to do, it denied coverage (rather than reserved its rights) but defended.

This one resulted in three opinions, a 2 – 2 – 1 opinion, very rare in the world of coverage.  Four votes in the two opinions declared that the carrier had no duty to defend.  Let’s enjoy this one.

Hendrix was injured when assaulted in a bar owned by Jinx-Proof (“Jinx”) and sued Jinx and some others in December 2007.  Apparently a Jinx security guard threw a glass in Hendrix’ face.  Jinx notified QBE of the suit on January 28, 2008 and three days later QBE responded:

"This company will promptly and diligently attempt to ascertain factual information to help us in establishing if this late notice has in any way handicapped our ability to investigate and defend this claim ... As soon as we can obtain the information, you will be notified of our decision.

"Furthermore, we are making this reservation of rights because your policy specifically excludes coverage for actions and proceedings to recover damages for bodily injuries arising from assault and batteries.... Consequently ... QBE Insurance Company will not be defending or indemnifying you under the General Liability portion of the policy for the assault and battery allegations.  Accordingly, we suggest that you consult an attorney in order to protect your interests and provide a defense for the assault and battery claim"(emphasis added).

Toward the end of February, QBE advised the insured that it was:

… defending this matter under the Liquor Liability portion of the CGL coverage, and under strict reservation of rights for allegations of Assault and Battery. Your policy excludes coverage for assault and battery claims ... Therefore, should this matter proceed to verdict, any awards by the Court stemming from allegations of Assault and Battery will not be covered under your Commercial General Liability policy.

Later, the Dram Shop claim and the negligence claims against Jinx were dismissed, leaving only the assault and battery claims.

Two judges found that QBE is entitled to a declaration that, now that all potentially covered claims in the underlying action have been dismissed, it has no further duty to defend or indemnify Jinx-Proof in that lawsuit.

The fight was over the use of the term “reservation of rights” in the QBE letters.  The first two judges noted that the vote in favor of the insurer's position under the particular circumstances of this case does not mean that an insurer is generally permitted to assume the defense of a case under a purported reservation of the right to disclaim liability or deny coverage as to any claim at a later time.  However, in this case, the use of the term did not negate its otherwise clear and unambiguous disclaimer of coverage of claims falling within the policy's assault-and-battery exclusion but the insurer had to defend because of the other allegations of negligence.

However, once the potentially covered claims were dismissed, QBE’s obligations to defend came to an end.

Editor’s Interim Note:  I’m with these two judges.  Beware the use of the term “reservation of rights” in NY but praise the carrier for unequivocally denying the assault and battery claims in the letters.  Let’s keep reading.

The other two judges, voting with the majority, agreed that the letters, “taken individually and collectively, apprised the insured in no uncertain terms that coverage was barred by the assault and battery exclusion contained in the policy”.

Those judges added that “no reasonable person would have an expectation of coverage under the circumstances” and that it isn’t even clear whether a disclaimer was necessary, because an intentional act is not an “occurrence”.

Editor’s Second Interim Note:  Point well made.

The dissenting judge argued that neither letter was a disclaimer of coverage.

The dissenter held that a “reservation of rights letter has no relevance to the question of whether the insurer has timely disclaimed,” a well-known New York rule that dates back to the 1978 decision of the Court of Appeals in Hartford Ins. Co. v County of Nassau.

By its own terms, the dissent held, the letters were reservation of the right to disclaim, not a disclaimer.

The dissent argued that while the January 31, 2008 letter stated that plaintiff "will not be defending or indemnifying you under the General Liability portion of the policy for the assault and battery allegations, it mistakenly stated that there was no liquor liability coverage under the policy and concluded that plaintiff was “reserv[ing] all rights under the policy.”  The February 26, 2008 letter stated that "[y]our policy excludes coverage for assault and battery claims."  However, it only advised Jinx-Proof that "should this matter proceed to verdict, any awards by the Court stemming from allegations of Assault and Battery will not be covered under your Commercial General Liability policy."  It did not state that no defense would be provided, or that coverage would not exist if the matter were settled or resolved by means other than a verdict.

Accordingly, the dissent argued, that neither of the two letters can be construed as an unequivocal and unambiguous disclaimer of coverage.

01/17/13       In Re GEICO v. Martin
Appellate Division, First Department
Contents of Admitted Police Report Established Ownership of So-Called Hit-and-Run Vehicle, Leading to Denial of Uninsured Motorists Benefits
In a “framed issue” hearing, GEICO established, by admissible proof, that a vehicle owned by Martin and another was involved in the accident.  GEICO submitted a police report containing the license plate number of the offending vehicle and no objection was made to its admission.  Accordingly, evidentiary objections were waived.

01/16/13       Natural Organics, Inc. OneBeacon America Insurance Co.
Appellate Division, Second Department
Claim that Company was No Longer Exclusive Agent to Sell Health Supplement Products Constituted Disparagement Claim for Which Defense Must be Provided Under Personal and Advertising Injury Coverage
Natural Organics, Inc. (“NOI”) manufactures health supplement products including those sold under the trade name, Nature’s Plus.  They were sued in federal court after ending an exclusive distributorship agreement with NPN replacing NPN with HON, an NPN competitor.

The complaint in the federal action asserted causes of action against NOI alleging, inter alia, unfair competition pursuant to the Lanham Act (15 USC § 1125[a]) on the basis that, through the press release, NOI misrepresented to consumers that HON was the sole distributor for Nature's Plus.

NOI tendered its defense in the federal action to its insurer, OneBeacon, which provided "personal and advertising injury liability" coverage. The OneBeacon policy defined "personal and advertising injury" as injury arising out of "[o]ral or written publication of material that slanders or libels a person or organization" or "[o]ral or written publication of material that disparages a person's or organization's goods, products or services."  OneBeacon denied coverage, on the basis that the allegations of the complaint in the federal action did not fall within the definition of "personal and advertising injury," and further, that the policy contained an exclusion of coverage for personal and advertising injury "arising out of a breach of contract."

The court found that the allegations of the federal complaint fell within the policy's coverage for "personal and advertising injury" arising from product disparagement.  The statement that HON had been appointed the exclusive distributor of Nature's Plus products in the Nordic region could imply that NPN's inventory of Nature's Plus products was unauthorized.

Here, the press release was allegedly false and disparaging to NPN's products without regard to whether NOI breached its agreement with NPN.

Here, without reference to the contract, NPN can potentially establish the product disparagement by the press release which called into question the genuineness of the product and whether the remaining inventory was unauthorized. OneBeacon's duty to defend NOI in the federal litigation was triggered.

01/16/13       Gagliardi v. Preferred Mutual Ins. Co.
Appellate Division, Second Department
Where Policyholder Requests Specific Coverage and Policy is Delivered Without It, Failure of Insured to Read the Policy for Nine Months and Notice Coverage Not Provided is Not a Complete Defense to the Claim
This is a breach of contract and negligence action against an insurance agent.  Generally, an agent or broker has a common-law duty to obtain requested coverage for a client or inform the client of an inability to do so.  An insured must show that the agent or broker failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that it breached the agreement or because it failed to exercise due care in the transaction, breach of contract or negligence.

After a fire, the broker, CEI, who secured the policies from Preferred Mutual, was sued for failing to procure satisfactory coverage.

CEI did not prove that the insured’s failure to read the terms of the policy, secured nine months earlier, justified judgment in its favor.  There was testimony from the policyholder that it had made an explicit request for a specific amount of coverage.  The mere fact that the insured had ample time, yet failed to read the policy to discern the actual liability limit under the policy, does not preclude liability as a matter of law.

CEI raised a spoliation defense, arguing that the plaintiffs demolished their home with the intention of frustrating discovery but the court rejected that argument as well.
Editor’s Note:  This is the second case in recent weeks where the insured’s failure to read the policy has not protected an agent or broker from liability for failure to procure coverage.

01/15/13       Raner v. Security Mutual Ins. Co.
Appellate Division, First Department
“Premises Occasionally Rented to Insured for Business Purposes” is Ambiguous as “Occasionally Rented” is Undefined; Questions of Fact of Notice to and by Carrier
Security Mutual policy excludes "liability …resulting from premises owned, rented or controlled by an insured other than the insured premises".  The court found that the exclusion is ambiguous because the definition of insured premises under the subject policy includes "that part of any premises occasionally rented to an insured for other than business purposes" and the policy offers no definition of the term "occasionally."  Thus, the term "occasionally rented" is ambiguous and may apply to a summer vacation rental such as the one at issue here — a beach club cabana rented for 20 successive years, albeit under separate yearly membership agreements.

There was a separate issue of timely notice by the insured.  The insured claimed that it relied on the plaintiff's promise not to sue in delaying her notification to the insurer. The reasonableness of that reliance is question of fact.

The insurer did not disclaim for 65 days after receipt of notice but claims that it could not tell from the correspondence whether or not the insured’s notice was late and there was evidence that was difficultly in reaching the insured by phone.

01/15/13       Brito v. Allstate Insurance Company
Appellate Division, First Department
Disclaimer Served 20 Days after Notice Would be Timely; Questions of Fact as to Whether Insurer Received Earlier Notice
Brito secured a default judgment against an Allstate insured and then brought a direct action against Allstate to enforce it.  The judgment was entered on July 25, 2011 and served in on Allstate the following day.  Allstate claimed not to know about the judgment until it received the pleadings from this action on December 8, 2011.  Allstate disclaimed on December 28, 2011.

Plaintiff argued that the disclaimer was late, whether Allstate received the judgment in July on or December 8.

As to the December 8, 2011 date, Allstate's issuance of the disclaimer letter 20 days later was timely as a matter of law. 

As to the earlier date, there are questions of fact.  Allstate rebutted the presumption that it received a copy of the default judgment on July 26, 2011, by submitting an affidavit by its claims examiner detailing its mail-handling and record-keeping procedures and denying that it received a copy of the judgment or indeed of any notice of the underlying action before December 8, 2011, when it was served with process in the instant.

01/10/13       Allstate New Jersey Ins. Co. v. Tse
Appellate Division, First Department
Twenty Day Limitation Period to Move to Stay Uninsured/Underinsured Motorists Arbitration Begins to Run with Demand for Arbitration
Tse’s letter of October 23, 2007 letter, which explicitly advised Allstate of a "potential claim under the Uninsured/Underinsured provision of the above-policy," and January 31, 2011 letter, which stated "[w]e will now be moving forward on our client's underinsured motorist claim," fail to include the requisite notice provision contained in CPLR § 7503(c) to constitute a sufficient notice to arbitrate.  An insurer has 20 days from a demand for arbitration to seek a stay.  Accordingly, the 20-day period to contest the obligation to arbitrate did not start to run until a proper demand for arbitration, containing the requisite language, was served by mail on February 7, 2012.
Editor’s Note:  Readers are reminded that in uninsured and underinsured motorist claims, if the UM/SUM carrier believes that the matter is not arbitrable because of a contractual issue, it must move to stay arbitration in State Supreme Court within 20 days of the arbitration demand or it will lose its right to have that issue determined.  The arbitrator does not have the power to render a decision on legal issues relating to qualification for benefits.

01/09/13       In the Matter of Allstate Insurance Co. v. Aizin
Appellate Division, Second Department
Framed Issue Hearing Required on Disputed Facts on Physical Contact in Uninsured Motorist Claim of “Hit-and-Run”
This case involved an application to stay uninsured motorist (“UM”) arbitration on the issue of physical contact between the appellant's vehicle and an alleged "hit-and-run" vehicle.  Without physical contact, UM coverage would be unavailable.

Aizin, while driving his own vehicle, was involved in a car accident with two other vehicles, driven by Giardina and Calabro, respectively. Aizin was insured by Allstate. According to the police accident report, Aizin's vehicle struck the rear end of both of the motor vehicles driven by Giardina and Calabro. Aizin claimed he lost control of his car after a hit-and-run vehicle struck his vehicle in the rear.
On the police report, no such claim was made; Aizin reported complained that he accelerator pedal was stuck,

Aizin made a claim for UM benefits from Allstate and Allstate brought this proceeding claiming that there was no physical contact and thus UM benefits were unavailable. Aizin contended there was contact and he never spoke to the police officer who had completed the report.

The issue of whether there was physical contact with the insured's vehicle and an alleged hit-and-run vehicle is to be determined by the Supreme Court, and not an arbitrator.  Here, there was a question of fact on that issue and the Court must conduct a “framed issue” hearing to determine the question.
Editor’s Note:  See Allstate v. Tse, above.

01/08/13       AB Green Gansevoort, LLC v. Peter Scalamandre & Sons, Inc.
Appellate Division, First Department
Owner Does Not Qualify as AI under Sub’s Blanket AI Endorsement. Blanket Additional Insured Endorsements Mean What They Say:  In Order to Qualify as an AI, a Party “You” (The Named Insured”) Must Have Agreed in Writing with the Party Seeking Status to Be So Named
Green sought coverage from Liberty Mutual as an additional insured. Vargas was injured in a construction site and sued Green, alleged to be the owner.  Pavarini was the general contractor and Pavarini regained Scalamandre as subcontractor.  Scalamandre then purchased concrete from Ferrara pursuant to an unsigned purchase order.

Ferrara was the Liberty insured.  The policy added as additional insureds, organizations “when you and such . . . organization have agreed in writing in a contract or agreement that such . . . organization be added as an additional insured on your policy."

Liberty argues, that that since Green did not produce any written agreement between itself and Ferrara naming Green as an additional insured, under the plain language of the policy, there was no question of fact as to whether an agreement existed between Ferrara and Green.

Liberty was right.  Without a written agreement between Ferrara and Green to be an additional insured, Green does not qualify.  The AI endorsement specfically provides that there must be a written agreement between the insured and the organization seeking coverage to add that organization as an additional insured. No such agreement exists here.

Green argued that the title of the endorsement -- "Additional Insured - Owners, Lessees or Contractors - Automatic status when required in construction agreement with you," automatically made Green an additional insured when Ferrara entered into a purchase order with Scalamandre.  The title does not alter the substance of the endorsement. Green argued, in the alternative, that the terms of the policy itself are ambiguous because the policy can be read to mean that the named insured and the party seeking to be an additional insured only need enter into written agreements with another party, not necessarily with each other.  However, that’s not what the blanket endorsement provides.
Editor’s Note:  Kudos to Marshall Potashner of Jaffe & Asher, LLP, for getting the right result on an often misunderstood issue. AI endorsements generally contain the same language as is seen here and require that the party seeking AI status be in contractual privity with the named insured from whom coverage is sought.

12/08/13       QBE Ins. Corp, v. Public Service Mutual Insurance Co.
Appellate Division, First Department
Intra-Insured Exclusion is Inapplicable; Court Correctly Assesses Priority of Coverage
Dierks owned a building and 33rd Street Bakery (“Bakery”) was a tenant.  Bakery was insured by PSM and in accordance with the lease, Dierks was listed as an additional insured. Dierks also had its own CGL policy issued by QBE.

An employee of Bakery was injured and sued Dierks.  PSM's denied coverage based on the "Intra-Insured" Exclusion which excludes defense and indemnification for any insured against a claim or suit brought by any other insured.

As the underlying plaintiff, an employee of the Bakery, is not an insured under the policy, the exclusion in inapplicable.

Any right PSM had to deny coverage is, in any event, waived.  The defense of the landlord was tendered to PSM on several occasions and PSM did not disclaim timely to the AI.  PSM’s coverage is primary, as compared to the landlord’s, under the standard CGL 00 01 provision that states that the landlord’s policy is excess over "any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement."

 

MARGO’S MUSINGS ON SERIOUS INJURY UNDER NEW YORK NO FAULT
Margo M. Lagueras
[email protected]

01/16/13       Koufalis v Logreira
Appellate Division, Second Department
Upon Motion to Renew, Plaintiff Submits Affidavits Attesting to the Truth and Accuracy of Unaffirmed Reports
At trial, plaintiff submitted unaffirmed reports from her physicians.  The trial court granted defendant’s motion dismissing the complaint, and denied plaintiff’s motion to reargue or renew.  On appeal, the court granted plaintiff’s motion to renew.  Plaintiff then submitted affidavits from the physicians attesting to the truth and accuracy of the unaffirmed reports.  Given this, the trial court should have allowed plaintiff to correct her mistake and submit the same evidence in proper form.  The trial court then also should have denied defendant’s motion because, although defendant submitted competent medical evidence showing that plaintiff did not sustain a serious injury to her left knee, cervical or lumbar spine, or under the 90/180-day category, in opposition, plaintiff raised an issue of fact with respect to her cervical and lumbar spine.
Note:  Would this qualify as a second bite?

01/16/13       Ambrose v Palmo Bus Corp.
Appellate Division, Second Department
Plaintiff’s Default Is Vacated and Defendants’ Motion Denied
Defendants’ motion to dismiss the complaint was unopposed and, therefore, was granted.  Plaintiff then made the requisite showing of both a reasonable excuse for the default and a meritorious opposition to the motion so the default was vacated.  Plaintiff then raised an issue of fact with respect to the alleged injuries to this spine and right shoulder under the permanent consequential and/or significant limitation of use categories sufficient to defeat summary judgment.

01/09/13       Bove v Zanelli
Appellate Division, Second Department
Defendants Fail to Meet Burden with Respect to Claimed Injury to Right Wrist
On appeal, the court affirms the holding of the trial court where defendants failed to meet their burden of demonstrating that plaintiff did not sustain a serious injury to the right wrist as claimed in the bill of particulars.  Therefore, there was no need to consider plaintiff’s opposing papers.

01/08/13       Lugo v Adom Rental Transportation, Inc.
Appellate Division, First Department
Deposition Testimony that Home Confinement Lasted Only One Month Defeats Claims under 90/180-Day Category
On appeal, the trial court’s order was modified to grant defendants’ motion with respect to all the claimed injuries of plaintiff’s mother, as well as to the infant plaintiff’s 90/180-day claim.  Defendants established that plaintiff’ mother did not sustain serious injury to her cervical or lumbar spine, or to her right shoulder.  Their expert orthopedist found no significant range-of-motion limitations and instead concluded her injuries were degenerative and consistent with her age and morbid obesity.  Defendants’ radiologist noted only degenerative changes and no issue of fact was raised in opposition as her treating physician did not set forth any quantitative or qualitative limitations.

With respect to the infant plaintiff, defendants’ orthopedist found normal range of motion in the left knee and lumbar and cervical spine and that she had bilateral patella malalignment, a preexisting condition.  Their radiologist opined that the MRI of the left knee was normal. 

However, plaintiff raised a triable issue of fact by submitting reports from her orthopedic surgeon who, during arthroscopic surgery, found a chondral lesion that he causally related to the accident.  He also concluded that the persistent buckling and patellofemoral instability were caused by the accident, and that those symptoms continued after the surgery.  Additionally, the report of an orthopedic surgeon retained by the non-appealing defendants noted that the chondral lesion was caused by the trauma of the accident and also found significant range of motion of the lumbar spine.  All this evidence, as well as an MRI report showing a herniation in the lumbosacral spine, was sufficient to raise a triable issue of fact.  As serious injury was established with regard to the left knee and lumbar spine, it was not necessary to address plaintiff’s failure to present evidence as to the cervical spine.  Plaintiffs’ claims under the 90/180-day category failed, however, because they admitted only being confined to home for a month during their depositions.

 

AUDREY’S ANGLES ON NO-FAULT
Audrey A. Seeley
aas@hurwitzfine.com
ARBITRATION
01/11/13       Buffalo Neurosurgery Group v. A. Central Ins. Co.
Arbitrator Veronica K. O’Connor, Erie County
Insurer Prevails On Surgical Denial.

The insurer denied a cervical discectomy and fusion as well as office visits performed by the Applicant.  The basis for the denial was upon the independent neurological examination conducted by Dr. Patrick Hughes.  Dr. Hughes’ opined that the eligible injured person sustained cervical strain and exacerbation of a pre-existing low back condition both of which were causally related to the motor vehicle accident but resolved. He further stated that his opinion was based upon the lack of objective findings upon examination.  Also, the abnormal MRI studies of the cervical spine were pre-existing and due to the age process.  He further stated that the reduced range of motion was not an objective finding since the eligible injured person could control it.

The assigned arbitrator upheld the denial and stated that the Applicant failed to submit copies of evaluation reports for two of the service dates at issue.  Further, the only report from the Applicant was the operative report and three post operative follow up reports.  Since there was no documentation relating the treatment rendered to the eligible injured person prior to the surgery, causal relationship and medical necessity were not established.

01/11/13       Applicant v. AIG
Arbitrator Thomas J. McCorry, Erie County
Drug Impairment Exclusion Applied To “Adverse Reaction” To Prescription Medication.

The insurer denied the Applicant’s no-fault claim arising out of May 18, 2008, accident upon the intoxication/drug impairment exclusion.  The Applicant after the accident was taken to ECMC and diagnosed with a right ankle fracture, closed head injury, and multiple lacerations.  The hospital record indicated that the Applicant had a significant psychiatric past medical history with borderline personality disorder.  She also had a substance abuse and alcohol abuse history.  The Applicant was noted to be anxious, have “altered mental status,” slurred speech and was positive for alcohol.

The police report indicated that the Applicant had a suicide attempt and when the police arrived drove off thereafter losing control of her vehicle and struck a tree.

The Applicant testified that she was at a Bachlorette party the night before and shortly before this accident took two Xanax pills.  She had little memory of the events thereafter.  The Applicant’s counsel argued that the exclusion should not apply because she took a prescribed drug, in a prescribed dose and had an “adverse reaction.”

The assigned arbitrator indicated that the documents submitted suggested substance abuse as a contributing cause of the accident and the Applicant had little or no memory of the events.  Thus, the documents were found to be more persuasive and the denial upheld.

01/10/13       Chiropractic Care of WNY LLC v. Allstate Ins. Co.
Arbitrator Kent L. Benziger, Erie County
Applicant Failed To Demonstrate Chiropractic Care Palliative.

The Applicant’s assignor was involved in a May 19, 2011, accident resulting in injury to the cervical and lumbar spine as well as the right shoulder.  A lumbar spine MRI revealed, among other things, unspecified annular tears, bulges, and spondylosis.  A right shoulder MRI revealed moderate supraspinatus tendonopathy and advanced osteoarthritis.

The Applicant sought reimbursement for chiropractic care and submitted periodic evaluation reports which the assigned arbitrator found conflicting. One treating chiropractor’s evaluation indicated that the objective findings were unchanged while another treating chiropractor’s evaluation noted that objective findings demonstrated improvement.

The insurer denied chiropractic treatment upon the independent re-examination by Michael Cardamone, DC.  Mr. Cardamone opined that the assignor reached the end result in chiropractic care and that the assignor had pre-existing degenerative changes to the cervical and lumbar spine that would affect recovery.

The assigned arbitrator found that the treatment records demonstrated chiropractic care did not provide any curative benefit.  Further, the assigned arbitrator found the second treating chiropractor’s notes to be more credible yet neither chiropractor’s notes quantified the claimed improvements by the assignor.

Thereafter, the analysis turned to whether the treatment was palliative in lessening the severity of pain and suffering in a qualitative and quantitative manner.  The assigned arbitrator set forth a well reasoned analysis on what that consists of:

If an Applicant can objectively quantify that the treatment provides relief for a significant period of time that enables the patient to work or perform his daily activities, then such treatment may be necessary to justify reimbursement.  However, if the period of relief is minimal, cannot be quantified, or provides no greater relief than some self-administered modality, then such treatment may not be reimbursable.  For example, the following may be deemed insufficient for proof of palliative benefits: a chiropractor’s checklist form stating improvement without additional facts, and a patient’s vague or conclusory statement as to receiving temporary benefits from the treatment without additional facts.

The assigned arbitrator found Mr. Cardamone’s opinion more persuasive and the Applicant made no credible showing of palliative benefits.  It is noted that the assigned arbitrator stated at the end “further, although moot, a reasonable person could consider it excessive and self-serving for Dr. Calabrese to project $18,000 in projected medical expenses on the first visit and ordering at least three types of conservative care including chiropractic care five times a week.”

LITIGATION

12/21/12       Alfa Med. Supplies v. GEICO Gen. Ins. Co.
Appellate Term, Second Department
Failure To Rebut Peer Review Results In Summary Judgment For Insurer.

The insurer was entitled to summary judgment on lack of medical necessity as the plaintiff failed to submit an affirmation from a doctor rebutting the conclusions set forth in the peer review report upon which the insurer relied.

12/21/12       Brooklyn Heights Physical Therapy, PC v. New York Cent. Mut. Fire Ins. Co.
Appellate Term, Second Department
Insurer’s Denial Not Nullity For Failure To Issue In Duplicate.

The insurer was entitled to summary judgment as its denial based upon a policy violation for failure to appear for scheduled IMEs was not rendered null for not issuing the denial in duplicate.  11 NYCRR §65-3.8(c)(1) requires an insurer to notify the applicant or authorized representative on the denial in duplicate.  The court held that the plaintiff failed to present any argument why the insurer’s mailing of each denial of claim to plaintiff, plaintiff’s assignor, and plaintiff’s attorney did not satisfy the requirement.

12/21/12       Essential Acupuncture Services, PC a/a/o Telma Garijo v. Ameriprise Auto & Home Ins.
Appellate Term, Second Department
Insurer Loses Policy Defense When Could Not Demonstrate EUO Letters Timely Issued.

The insurer was not entitled to summary judgment as it failed to establish a breach of the policy condition in failing to appear for scheduled EUOs.  The insurer did not demonstrate that the EUO scheduling letters were timely mailed thus the 30 day timeframe to pay or deny the claim was not tolled.  Accordingly, the insurer could not demonstrate that its denial was timely which precluded the insurer from arguing the breach of condition to coverage under the policy.

 

LIENING TOWER OF PERLEY
Michael F. Perley

[email protected]

SMART ACT MODIFICATIONS TO
MEDICARE SECONDARY PAYER RULES

In § 201 of the SMART Act, Congress now requires Medicare to establish and thereafter maintain a website that is current within 15 days of payments to assist carriers and Medicare beneficiaries in determining the amount of Medicare’s conditional payments.  In addition, primary payers are now allowed to notify Medicare up to 120 days before “the reasonably expected date of a settlement, judgment, award or other payment” that a payment is expected to be made.  That website will be password protected and made available to claimants and insurance carriers and is required, insofar as is possible, to provide provider and supplier names, diagnosis codes, dates of service and conditional payment amounts.  The website, to the extent possible, will identify claims and payments that are related to a potential settlement, judgment or award and will provide a method for receipt of secure electronic communications concerning that information.  The website can be used to compute final conditional payments if Medicare does not respond to requests for a final demand letter within 65 to 95 days depending on whether or not Medicare determines that up to 95 days is required. Don’t look for this any time soon.  The Department of Health and Human Services is mandated to provide regulations implementing the website provisions within nine months from January 10, 2013.  There is no timetable for establishing the website.

§ 202 of the SMART Act also provides for the determination of a threshold with regard to the amount of a judgment or settlement that would not be required to protect the interests of Medicare.  The threshold amount is to be established on an annual basis. 

§ 203 of the Act (42 U.S.C. 1395y(b)(8) eliminates the mandatory imposition of the $1,000 civil penalty for non-compliance with reporting requirements.  The Act substitutes the words “may be subject to a civil money penalty of up to $1,000 for each day of non-compliance with respect to each claimant” and directs the Department of Health and Human Services to promulgate regulations to clarify the situation.

Finally, § 205 of the Act (42 U.S.C. 1395y(b)(2)(B)(ii)) provides the following: “An action may not be brought by the United States under this clause with respect to payment owed unless the complaint is filed not later than three years after the date of the receipt of the notice of settlement, judgment, award or other payments…”  This statute of limitation applies only to conditional payments previously made by Medicare, which becomes clear when reviewing the statute and noting that clause (vi) of the existing Act states “notwithstanding any other time limits that may exist…the United States may seek to recover conditional payments in accordance with the subparagraph…within the three-year period beginning on the date on which the item or service was furnished.”  For that reason, I remain convinced that Medicare can seek to recover conditional payments made post-settlement or judgment where the interest of Medicare was not appropriately considered at that time.

While this helps resolve certain confusion with regard to the Medicare Secondary Payer issues, many issues remain.  At the very least, however, this may help resolve the past conditional payment issues with which all of us have struggled due to the lack of response received from CMS.

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]

Property

01/17/13       Quoizel, Inc. v Hartford Fire Ins. Co.
Appellate Division, First Department
Passive Participation in the Manufacturing Process Results in “Manufacturer” Status for Insured
A sprinkler leak in plaintiff’s warehouse caused a loss of covered stock.  While both parties agree that the loss qualified for coverage, a dispute arose over the valuation of the damages.  As defined by the policy, stock that was manufactured by the insured was entitled to be reimbursed at retail cost.  Conversely, stock that is not manufactured by the insured would only be reimbursed at replacement cost.

In support of its position, the insured argued that it was intimately involved in the manufacturing process which took place at several factories in China.  In addition, the insured pointed out that it approved all raw materials used in the production, maintained ownership of the items throughout the production process and that it was actively involved in oversight and quality control. 

In opposition, Hartford argued that the insured was simply a vendor of decorative light fixtures.  While it had people in China, it did not have an ownership interest the plants where the component parts were manufactured.  The third-party manufacturers purchased the raw materials, hired the labor force, and managed the production line.  Accordingly, Hartford argued that the insured could not be deemed to be a manufacturer for purposes of the enhanced coverages.

In a four person majority, the First Department ruled that the insured’s connection with the production process was sufficient to trigger its status as manufacturer.  In a well-reasoned dissent, Justice DeGrasse noted that plaintiff’s entire staff in China consisted of 27 people; all of whom worked out of one location.  Moreover, of those 27 people, most served as designers, computer assisted design operators and inspectors.   In her opinion, there was not a sufficient connection to make the leap from dealer/retailer to manufacturer. 

01/15/13       DLJ Mortgage Capital, Inc. v Kontogiannis
Appellate Division, First Department
With Proof of Knowledge, or Justifiable Reliance, Fraud Claims against Title Insurer Fail
Plaintiff commenced the instant action after it was revealed that it had purchased fraudulent mortgages from agents of Chicago Title and United General Title.  The facts of the case reveal that the agents issued fraudulent certificates of title and fraudulent commitments for title on the title insurers’ behalf.  However, plaintiff’s complaint against the insurers failed where, as here, it could not be established that the insurers were aware of the nefarious activities of their agents.  Moreover, the Court noted that plaintiff could not establish justifiable reliance upon the documents that were allegedly prepared by the fraudulent agents.

Potpourri

01/10/13       Gyabaah v Rivlab Transportation Corp.
Appellate Division, First Department
Signed Release and Signed Settlement Agreement Does Not Resolve Case Where Acceptance of Offer was Not Transmitted to the Carrier
Plaintiff originally retained Attorney Aronsky to represent her in a personal injury action against Rivlab.  Shortly after commencing the instant lawsuit, Mr. Aronsky advised his client that Rivlab, through its insurance company, was offering $1,000,000 to resolve the claim.  Apparently after receiving the tender offer, Mr. Aronsky requested that Rivlab submit an affidavit therein alleging that it had no other insurance available for the loss.

It is alleged that Mr. Aronsky discussed this matter with his client, where she allegedly agreed to accept the offer of Rivlab.  Consistent with the story, plaintiff executed a General Release within 5 days of Rivlab’s tender of its policy limits.  A week later, plaintiff also executed a hold harmless agreement in favor of Rivlab.   Mr. Aronsky also advised the plaintiff that he would hold the aforementioned releases until after he received notification from Rivlab that there was no other insurance available. 

Before notice of the acceptance was ever forwarded to Rivlab’s counsel, plaintiff retained new counsel who promptly rejected the previously agreed upon $1,000,000.  Mr. Aronsky immediately file a motion in the underlying court seeking to enforce the terms of the duly executed Release and Settlement Agreement.  Mr. Aronsky’s motion was denied based upon the invocation of the “interests of justice.” 

On appeal, however, the First Department vacated the Release and Settlement Agreement on the basis that it was never formally accepted.  Citing to principles of contract law, the Court noted that for any contract to be binding there must have been an expression of “acceptance.”  Here, unfortunately for Mr. Aronsky, the “acceptance” of the deal was never communicated to Rivlab or its attorneys.  Accordingly, the Release and Settlement Agreements (ie., the contracts) were unenforceable. 

Justice Andrias crafted a lengthy dissent which points out that per the CPLR (specifically CPLR 2104) requires that a binding agreement only be in writing, signed by the party bound, and incorporate all relevant terms.  Here, of course, that happened.  The fact that the executed Release and Settlement Agreement were never delivered to the other party is irrelevant as, per Justice Andrias’ review of Section 2104, the agreement is bound upon the execution of the settlement instrument. 

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]
Assembly Speaker, Sheldon Silver, issued a press release in association with two bills he has introduced for the upcoming legislative session.  In addition to the introduction of the two bills, he also directed the Assembly Insurance Committee to conduct a series of public hearings in the near future to examine the response of insurance companies in the aftermath of the storm.
Speaker Silver stated that this legislation and call for hearings result from the fact that his office and many other Assembly members have received numerous calls and complaints from home and business owners detailing slow, incomplete and inadequate responses from insurers.   Speaker Silver specifically stated that "People depend on their insurance companies to be there for them in their time of need, but too often we are hearing horror stories from property owners about poor service and inadequate settlement offers," said Silver. "It is time to get to the bottom of this and hold insurance companies accountable for their actions. This is why I am directing the Assembly Insurance Committee to hold public hearings so that we can further develop policies that work for consumers."

Assembly Bill A-2287 - The Homeowners Bill of Rights

A bill requiring easy understanding disclosures regarding coverage in the wake of a catastrophe.

This bill seeks to add a new section to the Insurance Law, section 3444-a, which would require any personal or commercial lines carriers that cover loss to real or personal property to provide a written detailed disclosure in a notice prescribed by the Superintendent.  The notice must describe clearly and in plain language:

  • Any and all coverage for loss caused by certain occurrences, including but not limited to fire, wind, windstorm, mudslide, hurricane, snow, ice, water surge, or flood
  • Any and all limitations or exclusions from coverage or other circumstances that would invalidate coverage
  • Set forth the deductibles and when the deductibles are triggered
  • All information related to claims investigation and process including but not limited to the process by which an insured may file a claim, all applicable time frames required by law/regulation and all necessary proof of loss information
  • The fact that an insured may file a complaint with the department
  • Any and all rights a claimant has under the laws and policy when a claim is denied or when the claimant rejects a settlement offer from the insurer
  • Information on how the insured may contact the insurer, including the insurer’s business hours, mailing address, phone number, fax number, website address and email
  • Information on how the insured can obtain the consumer’s guide (see below) on insuring against catastrophic losses as well as any other guides, pamphlets or other information DFS has made publicly available that would be beneficial to the insured.
  • If there is no coverage as a result of a weather condition, natural disaster or other occurrence such as fire, wind, windstorm, mudslide, hurricane, snow, ice, water surge or flood, the insurer or producer must provide information on any additional coverage options, including additional policies and riders, the NY Property Insurance Underwriting Assoc., the Coastal Market Assistance Program, the National Flood Insurance Program and any other option authorized by state or federal law.

 

In addition to the new provision, the legislation will add subsection 7 to the Unfair Claims Practice Law (Ins. Law §2601) which will include as an unfair claims practice knowingly misrepresenting or failing to provide pertinent facts of policy provisions as required under the above provision and not complying with those provisions as set forth, including established time frames for investigation of claims and the settlement and payment of claims.

This legislation will also add a new section to the Insurance Law §388 which requires a consumer guide on insuring against catastrophic losses.  DFS will have to issue a consumer guide on insuring against catastrophic losses that must contain comprehensive information detailing the ways in which different types of weather conditions, natural disasters or other occurrences can cause catastrophic losses as well as the type of insurance available to provide coverage against these types of losses.  The consumer guide must also provide a list of companies that provide the coverage, advice as to how to shop for and compare prices, service and quality of the coverage.  The consumer guide must also include a list of exclusions typically found in these coverages and how the consumer may obtain coverage for anything excluded under these coverages along with a list of those companies that provide that coverage.  Additionally, the consumer guide must include steps a consumer can take to prepare for a natural disaster and steps that can be taken following a catastrophic loss in order to facilitate the timely processing of the insurance claim with an explanation of the insured’s rights under the laws and regulations.

Assembly Bill A-1092 - Prompt Processing of Claims
A bill seeking to establish claim and settlement standards for insurance companies after a catastrophe
This bills seeks to amend the Insurance Law by adding §2616 “Standards for prompt investigation and settlement of claims.”  This should seem familiar to you as it essentially mirrors the changes to Regulation 64 as directed by the Governor and as discussed in the December 7, 2012 edition of Coverage Pointers. 

The bill will apply to insurers who cover damage to real or personal property as well as policies that cover liabilities for the loss of or damage to person or property when a state of emergency is declared.  The new provision would require an insurer to acknowledge the receipt of the claim, in writing, and commence investigation within 6 business days.  If the insurer wishes to inspect the damaged or destroyed property, the inspection must be done within six business days of notice of the claim, and the insurer must provide a notification of all the items, statements and forms that the insurer reasonably believes will be required during this timeframe as well.  Additionally, the insured may, where necessary to protect health and safety, immediately repair windows, exterior walls and doors, roofs, and heating, water and electrical systems while requiring an insurer to accept as proof of loss, photographs, video recordings, inventories and all receipts for the repairs.

Within 15 business days receipt of the items, statements and forms requested by the insurer determine whether the claim is accepted or rejected.  An insurer will be granted a one-time extension of 15 business days to make this determination.  To do so, the insurer must notify the claimant in writing with the reasons additional time is needed.

Once a claim is accepted by the insurer, the insurer must, in writing, advise of the amount the insurer is offering to settle the claim and also provide, in writing, all of the policy provisions regarding the claimant’s right to reject and appeal the offer.

If an insurer rejects the claim, the insurer must notify the claimant, in writing, of all applicable policy provisions regarding the claimant’s right to appeal the decision.

An insurer shall pay the claim not later than 3 business days from the settlement of the claim.

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal
[email protected]

12/21/12       Georgitsi Realty LLC v. Penn Star Insurance Company
Second Circuit Court of Appeals – New York
New York Court of Appeals Accepts Certified Question on 1/15/13
Last month the U.S. Court of Appeals for the Second Circuit certified a question to the New York Court of Appeals.  The question presented was, “[F]or purposes of construing a property insurance policy covering acts of vandalism, may malicious damage be found to result from an act no directed specifically to the covered property?  If so, what state of mind is required?”  On January 15, 2013, the New York Court of Appeals accepted the question for review.

By way of background, Georgitsi owns an apartment building (the “Building”), located on Eighth Avenue in Brooklyn, New York.  Georgitsi was insured by Penn Star under a broad form policy which included coverage for a variety of perils, including fire, windstorm, smoke, riots and vandalism.  The policy defined “vandalism” as the “willful and malicious damage to, or destruction of, the described property”.

Beginning in 2007 the Building sustained significant damage as a result of construction and excavation work performed on the property adjacent to the Building owned by Armory Plaza, Inc. [“Adjacent Parcel”].  The excavation work was performed as part of a plan to construct an underground parking garage.  Georgitsi had previously notified Armory Plaza and the excavators, engineers, and architect working on the Adjacent Parcel about the damage to the Building.  Georgitsi had also notified the New York City Department of Buildings, which issued numerous “stop work” orders and summonses to the Excavators. Georgitsi also obtained a temporary restraining order from the Kings County Supreme Court enjoining the excavators from continuing their construction work on the Adjacent Parcel.  The excavators nonetheless continued the construction work and ultimately admitted to many violations of the stop work orders, paying $36,500 in fines to the city.

In December, 2007 Georgitsi notified Penn Star of its claim under the policy.  Penn Star denied coverage on the ground that excavation damage did not constitute vandalism under the Policy.  Georgitsi filed suit against Penn Star in state court, which Penn Star later had removed to the United Stated District Court for the Eastern District of New York. 

That Magistrate Judge, in its report and recommendation to the district court, found that the excavators had not committed vandalism within the meaning of the Policy because their actions were directed only to the Adjacent Parcel, not the Building, and that proof of recklessness would not satisfy the malice requirement of the Policy as a matter of law.  The district court adopted the recommended ruling of the Magistrate Judge.

Because the U.S. Court of Appeals for the Second Circuit concluded that the appeal turned on the unsettled and important question of New York law of whether “malicious damage” within the meaning of an insurance policy covering vandalism may be found to result from an act not directed at the policyholder’s property but causing damage thereto and undertaken with knowing disregard for the policyholder’s rights, it certified the above question to the New York Court of Appeals.

Once the Court of Appeals has decided on this matter we will, as always, report the findings in Coverage Pointers.

01/07/13       Royal Sun Alliance Ins. v. International Management Svc. Co.
Second Circuit Court of Appeals – New York
Is Third Party Contractor Entitled to Receive Benefit of Liability Limitation
The issue presented in this case is whether, under either the Carmack Amendment or the federal common law of bailment, a third-party contractor is entitled to receive the benefit of a liability limitation in a contract between a shipper and a carrier where the contract does not extend the limitation to third parties. 

In May, 2008, Ethicon, Inc. a pharmaceutical company, entered into a Logistics Services Agreement [“LSA”] with defendant UPS Supply Chain Solutions, Inc. [“UPS”] to provide transportation and distribution of various pharmaceutical products.  The Agreement specified that UPS’s maximum liability to Ethicon would be $250,000 per shipment for “finished” goods and $100,000 for all other shipments.  In a section titled “Third-Party Carrier’s Liability for Loss of Damage,” the LSA stated that the liability of third-party carriers would “be governed by the applicable agreement with such carrier(s)”.

UPS arranged for its wholly owned subsidiary, defendant Worldwide Dedicated Services, Inc. (“WDS”), to transport Ethicon’s goods.  While WDS provided the trucks, it had previously contracted with International Management Services Company, Inc. [“IMSCO”] to provide drivers for various deliveries. This Agreement, the Staffing Services Agreement [“SSA”], contained no limitation on liability for IMSCO.  In fact, the SSA expressly provided that neither IMSCO nor its employees would be considered agents of WDS.  The SSA also specified that IMSCO would obtain $2,000,000 in liability insurance per vehicle driven by an IMSCO employee and would indemnify WDS for any liability in excess of $2,000,000.

In March, 2009, Ethicon sent a shipment of goods from Texas to Tennessee pursuant to the LSA.  UPS/WDS took possession of the shipment in Texas and the truck was driven by two IMSCO employees provided to WDS under the terms of the SSA.  While the truck was en route an accident occurred and the vehicle caught fire damaging several parcels in the truck.

After the accident Ethicon filed a claim with Royal & Sun Alliance [“RSA”].  RSA paid Ethicon $769,726.38.  RSA as subrogee, sought recovery from defendants UPS, WDS, IMSCO and TFE Logistics Group., and ultimately field suit in the U.S. District Court for the Southern District of New York.

RSA moved for partial summary judgment on three issues:  (1) whether UPS was liable to if for $250,000 under the LSA; (2) whether WDS was not covered by LSA’s liability limitation; and, (3) whether IMSCO and TFE were not covered by the limitation.

The district court granted RSA’s motion with respect to UPS; denied RSA’s motion with respect to WDS; and, found that IMSCO and TFE were not covered by the liability limitation, at least under the Carmack Amendment to the Interstate Commerce Act of 1887, 49 U.S.C. § 14706.

After the court’s decision, RSA and IMSCO entered and filed a written stipulation.  The parties stipulated that “the principal amount of plaintiff’s damages is $750,000 and that the total recoverable damages by RSA if liability is found is $500,000, because $250,000 had already been paid by UPS.

In a subsequent motion the Court determined that neither the Carmack Amendment, nor federal common law extended contractual liability limitations to third-party contractors absent evidence of contractual intend to so extend them.

After a bench trial on the remaining factual issues, the district court ruled in favor of RSA and ordered IMSCO to pay damages in the amount of $500,000 plus interest.  IMSCO appealed.

On Appeal the Second Circuit Court of Appeals [“Court”] determined that the Carmack Amendment did not displace traditional contract principles except insofar as it specifically provides.  In order for a contractual clause to extend a benefit to a third party, there must be evidence in the language of the contract of intent to do so. The Court found that the LSA contained no such language.  Further the court found that because the SSA was silent on the question of whether IMSCO’s liability is limited, there is no contractual intent among any of the parties to limit IMSCO’s liability.

Accordingly, the court declined to hold that third parties to shipping contracts are automatic beneficiaries of limitations on liability that by their terms only apply to the parties to the contract. 

The Court also determined that under federal common law, the question of whether a liability limitation extends to third parties is “a simple question of contract interpretation” and as previously noted the terms of the contract in this case do not extend the limitation on liability to cover sub-bailees.

01/11/13       Nationwide Ins. Co. v. Central Laborers Pension Fund
Seventh Circuit Court of Appeals – Illinois
Homeowner’s Insurer Has No Duty to Defend or Indemnify for Lost Data
Jeanne Hentz was an accountant employed by Kevin W. Bragee, CPA, LLC.  The Central Laborers’ Pension Fund, Central Laborers’ Welfare Fund and Central Laborers’ Annuity Fund [“Funds”] hired the firm to perform accounting and auditing services.  To perform those services, the firm possessed a compact disc containing confidential and protected information.  The firm agreed in writing to ensure that its employees and agents would safeguard the information on the compact disc.

At the end of a work day, Hentz placed the compact disc in a laptop and put the laptop in her personal vehicle, and parked it at her residence.  The laptop was stolen from the vehicle.  In order to mitigate potential misuse of the confidential information, the funds incurred nearly $200,000 in credit monitoring and insurance expenses. To recoup these expenses the Funds filed suit in state court against Hentz.  Hentz thereafter, tendered her defense to her homeowners’ insurer, Nationwide.

Nationwide denied the tender and filed a declaratory judgment action in federal court.  It was Nationwide’s position that the claim was not covered because the policy does not cover “property damage, to property rented to, occupied or used by or in the care of the insured.”  Nationwide also relied upon language in the policy which stated that it does not cover “property damage arising out of or in connection with ‘business’ conducted from an ‘insured location’ or engaged in by an ‘insured’, whether or not the ‘business’ is owned or operated by an ‘insured’ or employs an ‘insured’.  This later exclusion “applies but is not limited to an act or omission, regardless of its nature or circumstances, involving a service or duty rendered, promised, owned or implied to be provided because of the nature of the ‘business’.

Nationwide and the Funds cross-moved for summary judgment and the district court granted Nationwide’s motion.  The funds appealed, and for the following reasons the Seventh Circuit Court of Appeals [“Court”] affirmed.

First, the court pointed out that under Illinois law, an “in care of” exclusion like the one in the policy applies only if two elements are met:  the property lost or stolen was (1) within the exclusive possessory control of the insured at the time of the loss; and (2) a necessary element of the work performed by the insured.  The Court noted that the state complaint alleged that Hentz, pursuant to her employment with the firm, came into possession of the compact disc and had a duty to safeguard the confidential information that it contained, and determined that Hentz’s possession of the compact disc and duty to safeguard the information amount to the exercise of some type of possessory control over the compact disc.  In addition, the court determined that because the handling and care of confidential information is vital to Hentz’s work as an accountant, the compact disc containing such information is a necessary, rather than incidental, element of her ordinary employment activities. 

Further, the court concluded that in addition to the application of the policy’s “in care of” exclusion, the policy’s “business” exclusion also precludes coverage. The Funds did not dispute that the firm is a business which employs Hentz, and that, according to the state complaint Hentz had a duty to safeguard the confidential information on the compact disc because she was an accountant employed by the firm.  The Court determined that Hentz’s failure to safeguard the compact disc was an omission amounting to a breach of that duty; therefore, the policy’s “business” exclusion applied.

The Court concluded that Nationwide had no duty to defend Hentz against the Fund’s state action; and, because Nationwide owed no duty to defend, it owed no duty to indemnify her for liability stemming from that suit.

 

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected] 

01/07/13       Universal Am. Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA
Supreme Court, New York County
Computer Systems Fraud Rider Not Triggered Where Fraud Resulted from the Contents of Medicare Provider’s Claim, Not the Misuse or Manipulation of the Computer System
National Union issued a “Computer Systems Fraud” insurance policy to plaintiff, a health insurance company which provided Medicare managed-care plans, Medicare prescription drug benefits and other insurance products. 

At issue here were “Medicare Advantage Private Fee-For-Service” plans issued by plaintiff.  These plans were government-regulated alternatives to Medicare.  Essentially, members enrolled in health care plans offered by private insurers, which plans receive reimbursement payments from the Centers for Medicare and Medicaid Services. The plans also received payments from plan members themselves. Under such plans, health care providers submitted claims for services provided to plan members, similar to traditional health insurance policies. In plaintiff's case, many of the claims were "auto-adjudicated" through its computer system, with payments rendered without any manual review.

In late 2008, plaintiff discovered that it suffered over 18 million in losses from fraudulent claims made in the systems.  Most of the claims were submitted, by providers, directly into the system.  In some cases, the perpetrators enrolled new member in the plan with the person’s cooperation, in return for which the member received a kickback from the provider. 

Thereafter, in 2009, plaintiff submitted a proof of loss to National Union.  The claim was eventually denied, and this action resulted.  The central issue was the meaning of a Rider to the policy titled “Computer Systems Fraud.”  Specifically, the Rider provided that plaintiff shall be indemnified for “[l]oss resulting directly from a fraudulent…entry of Electronic Data…into [Plaintiff’s] proprietary Computer System…”

In examining this Rider, the court noted that it had two headings, “Computer Systems” and “Computer Systems Fraud.”  It had no headings which referred to the content of medical claims submitted to the system.  Thus, in the court’s opinion, the headings indicated that the coverage was directed at misuse or manipulation of the system itself rather than at situations where the fraud arose from the content of the claim, and the system was otherwise properly utilized.  Further, the Rider stated that it covered “fraudulent entry” of data or computer programs into plaintiff’s computer system which resulted in a loss.  This indicated that coverage was for an unauthorized entry into the system (i.e. by an unauthorized user, such as a hacker) or for unauthorized data (e.g. a computer virus).  Nothing in this clause indicated that coverage was intended where an authorized user utilized the system as intended (i.e. to submit claims), but where the claims themselves were fraudulent.

12/24/12       American Intl. Specialty v. Kagor Realty Co., LLC
Supreme County, New York County
No Coverage Where Lead Paint Ingestion Occurred Prior to Policy’s Retroactive Date
Plaintiff in the underlying action allegedly ingested lead from November 1992 to March 2001.  Following depositions, the infant’s mother testified that the infant was eating paint chips from November 1993 through November 1994 or 1995.  American International issued a policy for the premises for the period from December 2003 to December 2008.  While the policy did provide a retroactive date, which stated that “the Pollution Conditions must commence on or after the date shown below,” that date was June 9, 1996, after the testified to ingestion dates.  Accordingly, the court found that the American International policy was not triggered.  

12/20/12       Burlington Ins. Co. v. NYC Tr. Auth.
Supreme Court, New York County
Where Insured Deemed Not Negligent, No Additional Insured Coverage; Acts or Omissions Language in Additional Insured Endorsement
This decision involves an interesting set of facts.  Breaking Solutions, Inc. was retained by the New York City Transit Authority (NYCTA) to supply excavation equipment and labor for a subway tunnel project.  In compliance with the terms of the contract, Breaking Solutions obtained a CGL policy from Burlington.  The specific AI provision in the Burlington policy provided coverage for NYCTA, MTA and the City of New York for liability caused by the “acts or omissions [of Breaking Solutions] or the act or omissions of those acting on behalf of [Breaking Solutions].” 

Eventually, a NYCTA employee sustained injury at the project when he fell from an elevated work platform as a result of an explosion in the tunnel.  Allegedly, the explosion was caused when excavation equipment came into contact with a live electrical cable. 

The injured worker commenced a personal injury action against Breaking Solutions and the City.  Burlington agreed to defend the City in the underlying action as an additional insured, subject to a reservation of rights.  Per the terms of the policy, the City was only an additional insured with respect to liability for bodily injury caused in whole or in part by Breaking Solutions’ acts or omissions. 

Thereafter, the NYCTA sent a letter to Breaking Solutions indicating that they would be withholding the payment of over $150,000 due for work on the project, unless Breaking Solution agreed to defend and indemnify the City.  As an accommodation to its insured, Burlington agreed to withdraw the reservation of rights as to the City.

At the close of discovery in the underlying action, it became clear that the injury to the worker did not arise out of Breaking Solutions’ work.  Rather, it was due to NYCTA’s failure to identify job-site hazards involving buried energized cables.  As a result, the claims against Breaking Solutions were dismissed. 

Thereafter, Burlington paid $950,000 to settle the underlying action on behalf of the City.  Apparently, however, this settlement was conditioned upon the City’s agreement to transfer to Burlington any indemnification rights it had against NYCTA. 

Burlington then brought this action seeking a determination that NYCTA did not qualify as an additional insured under its policy.  In considering Burlington’s motion for summary judgment and the motion to amend the complaint, the court began by finding that because the terms of the AI endorsement provided coverage to NYCTA only for the liability arising out of Breaking Solutions’ “acts or omissions”, and because Breaking Solutions was determined not be negligent in the underlying action, this provision was not triggered and NYCTA was not entitled to additional insured status.  Further, the disclaimer submitted by Breaking Solutions was not untimely as the AI claim fell outside the policy’s coverage and a disclaimer was unnecessary.  Accordingly, the court granted partial summary judgment to Burlington. 

The next question considered by the court was Burlington’s request to amend its complaint to assert a claim of contractual indemnification against NYCTA.  Specifically, by virtue of the settlement payment Burlington made on behalf of the City, Burlington claimed to be a subrogee of the City, and therefore entitled to seek indemnification from NYCTA under a lease agreement both parties entered into involving the project site.

In granting the motion, the court rejected NYCTA’s opposition that the proposed amendment would prejudice NYCTA and was without merit.  With regard to merit, the court found that Burlington was not a voluntary payor.  Irrespective of the fact that the City was not actually entitled to coverage, when Burlington withdrew its reservation of rights as to the City at NYCTA’s insistence, this secured the City’s coverage as an additional insured under the policy.  As such, Burlington’s continued defense of the City in the underlying action and settlement payment was not “voluntary.”  Lastly, the anti-subrogation rule did not preclude the amendment as NYCTA did not qualify as an additional insured due to the specific language of the AI endorsement. 

New York Bad Faith Update:

As some of you may recall, in our October 28, 2011 issue, we reported on the following Kings County decision in Taveras v. American Tr. Ins. Co.:

10/17/11         Taveras v. American Tr. Ins. Co.
Supreme Court, Kings County
Auto Insurer Gets Hit With $2,250,000 Bad Faith Judgment – Lessons to be Learned
In May 2002, a taxi operated by Muhammad Amir, pursuant to a medallion owned by Thurston Steed, and insured by American Transit Insurance Company (the “AMIR taxi”), was involved in a three car accident.  Plaintiff, a union banquet waiter, was a rear seat passenger in the AMIR taxi when it struck the rear of a rental car owned by ELRAC, Inc., the parent company to Enterprise-Rent-A-Car.  Thereafter, the AMIR taxi was also struck by another taxi, driven by Lakwinder Singh and also insured by American Transit Insurance Company (“AT”). 

Plaintiff sustained injury in the accident and brought an action against all three vehicles.  In April 2006, after a bifurcated jury trial, liability was apportioned 70% to the AMIR taxi and 30% to the SINGH taxi.  No liability was found against the Enterprise vehicle; however, prior to trial it had entered into a high-low agreement with plaintiff based on the percentage of liability.  Thus, following the trial Enterprise paid its low ($225,000). 

Following the liability portion of the trial, and before opening on damages, plaintiff’s counsel, on the record, indicated that he was still willing to settle with AT for the combined policy limits of the SINGH and AMIR taxis, $200,000.  No settlement was reached.  Thereafter, the matter went to the jury and they rendered a verdict on damages in the amount of over nine million dollars.  Notably, the amount was later reduced to $2,500,000 by the Appellate Division.

Following this judgment being rendered, AMIR assigned his right to commence a bad faith action against AT to plaintiff, which resulted in this action.  In New York, to prevail in such an action, a plaintiff must establish that the insured “lost an actual opportunity to settle the . . . [action] . . . at a time when all serious doubts about [his or her] liability were removed” and that “defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that an insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted” (see Pavia v State Farm Mut. Auto. Ins. Co.).

Ultimately, the court agreed with plaintiff and found that AT had acted in bad faith; thus, it was liable for the remainder of the damages, $2,225,000. 

Notably, in reaching its decision, the court made a list of the fifteen things AT did wrong in its handling of the underlying case. 

  • AT violated its own internal protocol by having one claims examiner handle both of the claims filed against its insureds, AMIR/STEED and SINGH, despite the obvious conflict of interest;
  • AT failed to adhere to its own internal protocol in properly documenting the claims file for both insureds.  The files did not include medical records, bills of particular, operative reports, conversations with defense counsel, periodic claims evaluations etc.;
  • AT’s Bodily Injury Manager admitted that he was not only aware of AT’s failure to properly document all pertinent information in its claims notes, but allowed the violation to occur;
  • Plaintiff made an economic claim in excess of 1.5 million; however, no reference of this was made in the computerized claims notes;
  • AT violated its own protocol of maintaining the hard copies of the claims files and, at the time of trial, AT only had its computerized claims notes available to evaluate the risks to its insureds;
  • Based upon the computerized claims notes, which were the only source of information available to AT during the trial, its claims examiners, claims supervisor, Bodily Injury Manager and VP had no ability to evaluate the underlying action and they had no idea of the risk to their insureds;
  • Based on the inadequate claims notes and copies of only some, but not all, pleadings, AT did not have the ability to provide a fair and adequate evaluation and AT employees admitted that just using the claims notes was not sufficient to evaluate the claim and it was, in fact, reckless to proceed to trial; 
  • AT’s Bodily Injury Manger conceded that as there was insufficient information in the claims files in order to fairly evaluate the merits of the case, AT could not protect the rights and interests of its insureds;
  • AT never communicated directly with its insured, AMIR, because AT relied on defense counsel to speak with the insured and there was no documentation that indicted that AT communicated any information whatsoever to its insured in writing;
  • Defense counsel and AT failed to inform AMIR of any settlement negotiations or settlement offer;
  • AT failed to put itself on equal footing with its insureds when the damages phase of the trial commenced;
  • AT refused to settle the underlying action without receiving pre-trial reports from defense counsel, which it never received prior to the conclusion of the trial, despite AT’s separate and non-delegable duty to evaluate the risk to the insureds;
  • Before the liability and damages phases of the trial, the only AT personnel with the authority to settle a case for more than $50,000, never received the file or even knew that the case was going to trial or allowed the case to proceed to trial;
  • AT lost the opportunity to settle the claim at a time when all serious doubts about the insured’s liability were removed (i.e., following the liability portion); and  
  • AT failed to timely disclose the expert witnesses it needed for the damages portion of the trial, which resulted in their preclusion from testifying. 

 

Note:  As you can see, this is not a case in which one mistake was made, but, if the court’s rendition of the facts is accurate, there were a serious of errors.  Again, assuming the accuracy of the assertions, AT violated some of the basic rules of claims handling.  Some lessons this case teaches us include:

  • Communicate with the insured.  If the insured faces a potentially uninsured risk, make sure he, she or it knows about it.  The insured should always be kept advised of the status of negotiations.  Always.
  • Communicate with the defense counsel.  There should be no surprises.
  • Where insureds having conflicting interests, separate adjusters should be assigned to the files in the same way that separate attorneys should be assigned.
  • DOCUMENT, DOCUMENT, DOCUMENT the claims files.
  • Communicate with defense counsel.  If you need information, ask for it.  Do not wait around until defense counsel decides to provide it. 

Well, we will not be seeing an appellate level decision on this case as it has just been reported that the matter settled before the appeal could be perfected with American Transit Insurance agreeing to pay $2.85 million. 

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

TO APPEAL OR NOT TO APPEAL, THAT IS THE QUESTION

The strange quirk of New York procedure which allows interlocutory appeals for virtually any procedural or substantive ruling raises issues of whether, when, and how best to appeal preliminary decisions and orders.  The New York rule permitting appeals from interlocutory orders on the one hand avoids the prospect of expensive trial and other proceedings, and can correct erroneous motions and discovery rulings before trial.  This is of course the total opposite of federal practice where interlocutory appeals are not allowed, and appeals from a final judgment review almost everything previously decided.  Federal practice has its own problems, precluding proper and well-founded appeals from non-final orders which may well be dispositive or critical in deciding the case until after a trial or further motions result in a final judgment.

The recent case of Siegmund Strauss, Inc. v. East 149th Realty Corp., 2012 WL 5199393 (October 23, 2012) by the Court of Appeals deals with what happens when a party elects not to file an interlocutory appeal but withholds the appeal until after final judgment.

CPLR 5501(a)(1) provides that an appeal from a final judgment brings up for review any prior ruling and disposition that “necessarily affects” that final judgment.  The question then becomes what prior and preliminary orders “necessarily affect” the final judgment. An easy case, for example, is a denial of a summary judgment motion which should have been granted which would “necessarily affect” the final judgment.  At other times it is not as easy to determine when a prior order “necessarily affects” the final judgment with respect to, for example, preliminary procedural rulings, discovery motions, and other rulings that may occur along the litigation path.

In Siegmund Strauss, the plaintiff sought a declaration that it was the lawful tenant of premises in Manhattan due to a corporate transaction with the defendants.  The defendants counterclaimed against the plaintiff and impleaded plaintiff’s principals.  The defendants’ claims were dismissed, but defendant did not appeal.  Ultimately there was a final judgment for the plaintiff declaring it the lawful tenant of the property.  Defendants then appealed the final judgment and the issue was whether, on that appeal, the appellate courts could also review the prior orders dismissing the counterclaim and third party claims.

On pure application of the “necessarily affects” criteria, the argument would be that those prior rulings did not necessarily affect the final judgment that plaintiff was entitled to possession of the premises, which could have remained in effect if the earlier orders were reversed.  The first appellate court so ruled.  However, the Court of Appeals reversed the Appellate Division applying a more liberal view of the “necessarily affects” standard.  The Court of Appeals ruled that dismissal of the counterclaims and third party claims for failure to state a cause of action necessarily removed those issues from the case and, because there was no further opportunity to raise those questions, the order did “necessarily affect” the final judgment. 

Another related caveat is that if an interlocutory appeal is initiated, a prior ruling by the Court of Appeals in a case called Aho indicates that if there is a pending appeal at the time a final judgment is entered, the final judgment terminates that appeal.

Whether or not to appeal an interlocutory order, or wait until final judgment is entered depends on at least four factors:

  • The scope of the prior order.  If the prior order clearly affects significant procedural and substantive rights so that it would “necessarily affect” any final judgment, the option may exist to delay the appeal until final judgment since, upon entry of the final judgment, an appeal can bring up those prior matters for review.  However, if the ruling may be contentious and important but does not “necessarily affect” the final judgment or case outcome, greater consideration may have to be given to filing the interlocutory appeal.
  • The importance of the issue at hand.  Even if the order may not “necessarily affect” the final judgment, if it nonetheless grants or restricts significant procedural, discovery, or substantive rights, an immediate appeal may be necessary rather than waiting until a final judgment down the road
  • Timing.  How much time is left to file, perfect, and get a decision on a pending appeal before a final judgment might be entered based on subsequent motion or trial practice.  Under the Aho case, you have to get that earlier appeal disposed of before the final judgment is rendered which could extinguish a pending appeal.
  • Strategy.  Given the nature of the issues and damage caused by the earlier ruling, is it strategically better to file an immediate appeal and try to get prompt redress, or proceed to further motion practice or trial hampered or limited by the prior ruling.

 

New York civil procedure grants extensive, many would say too liberal, appeal rights.  The corresponding decisions are whether to appeal immediately from an interlocutory decision and whether you can get that appeal heard before entry of a final judgment.  If you wait until final judgment to bring the appeal, if there is any doubt or question you can certainly expect the appellee to raise an initial threshold argument by motion or in their brief that the prior order did not “necessarily affect” the final judgment and is non-reviewable at that later post-judgment stage under CPLR 5501(a)(1).

 

ACROSS BORDERS
Courtesy of the FDCC Website
www.thefederation.org

01/10/13       Manner v. Scheirmeier
Missouri Supreme Court
Supreme Court of Missouri, Sitting En Banc, Holds That “Owned Vehicle Exclusion” Did Not Apply to Motorcycle When Insured Party Had Possession but Title Was Retained By Party Receiving Payments

This action arose from a motorcycle accident in which a 23 year old man was extensively injured with damages approaching $1.5million. Tortfeasor’s insurer paid $100,000 and the injured party sought to collect an additional $100,000 under the underinsured motorist coverage on four separate policies, the policy covering the motorcycle that he was riding, policies covering two trucks that he owned and a policy on his father’s motorcycle as an additional insured. Coverage was denied under all four policies and the injured party joined the insurers as additional defendants.

 The insurers contended that the three policies other than the policy covering his motorcycle each included “owned vehicle exclusions” which excluded coverage for injury “while occupying or when struck by, a motor vehicle that is not insured under this policy if it is owned by you or any residents of your household.”

Additionally, the insurers held that the underinsured coverage could not stack since each policy was worth $100,000, which he had already recovered from the tortfeasor.

On appeal from summary judgment in the insurer’s favor, the Supreme Court found that the insurers had not met their burden of showing that the injured party owned the motorcycle that he was riding when injured. The court found that the motorcycle originally belonged to the injured party’s uncle who retained title while the young man made payments. The court found that the policies neglected to define “owned” and therefore they could not unambiguously show that the injured party owned the motorcycle in question. Additionally, the court found that an “other insurance provision” in all four of the policies permitted stacking of coverage because each policy claimed to be the excess over any other collectible underinsured coverage.

As a result, the Supreme Court reversed the judgment and remanded the case to the trial court.
Submitted by: Michael O’Connell, Michelle Bibeau, and Brian Doherty of O’Connell, Attmore & Morris, LLC

01/10/13       Oakdale Mall Assoc. v. Cincinnati Ins. Co.
Eighth Circuit Court of Appeals
Eighth Circuit Holds That Commercial Property Coverage Exclusion Applied to Mall Which Failed to Operate at 31% of its Capacity

This case arose from the theft of copper coils contained in the rooftop heating and cooling units of a mall in Minnesota. Insurer denied coverage under the claim citing a policy exclusion for theft if the mall was vacant for more than sixty days preceding the loss or damage. Vacancy was defined as less than 31% of the square footage being leased and used by tenants or used to conduct customary operations.

The two parties had some dispute over whether two nominal tenants, who leased about 2% of the square footage but had not operated business within the premises for over a year, counted towards the vacancy. There was a similar disagreement as to the amount of mall operation office space and common area that counted towards space used for “customary operations.” The district court excluded the two nominal tenants and found that even with the disputed numbers more favorable to Oakdale the mall was only operating at about 30% capacity.

On appeal the Eighth Circuit affirmed the judgment of the district court finding that the disputed leases could not count because, while the space was rented that space was not being used for business purposes. The Eighth Circuit paid some credence to the mall operator’s claim that a previous tenant had significantly expanded the common area but found that that mall’s failure to provide an estimate of that space rendered the argument unavailing. Ultimately the court concluded that the mall was using only about 54,500 sq. ft. of its 180,000 sq. ft. and the coverage was properly excluded.
Submitted by: Michael O’Connell, Steven Zakrzewski, and Brian Doherty of O’Connell, Attmore & Morris, LLC

 

REPORTED DECISIONS

QBE Insurance Corporation v. Jinx-Proof Inc.

Devitt Spellman Barrett, LLP, Smithtown (John M. Denby of
counsel), for Jinx-Proof Inc., appellant.
Zalman Schnurman Miner, P.C., New York (Marc H. Miner of
counsel), for Vera Hendrix, appellant.
Thomas M. Bona, P.C., White Plains (Anthony M. Napoli of
counsel), for respondent.

Order, Supreme Court, New York County (Salliann Scarpulla, J.), entered August 17, 2011, which granted plaintiff's motion for summary judgment declaring that it is not obligated to defend defendant Jinx-Proof, Inc. in the underlying action, and denied Jinx-Proof's motion for summary judgment dismissing the complaint as against it, modified, on the law, to declare that plaintiff is not obligated to defendant Jinx-Proof in the underlying action, and otherwise affirmed, without costs.

Friedman and Román, JJ., concur in a separate memorandum by Friedman, J.; Sweeny and Manzanet-Daniels, JJ. concur in a separate memorandum by Manzanet-Daniels, J.; and Andrias, J. dissents in a memorandum, as follows:

FRIEDMAN, J. (concurring)

While the relevant facts are more fully set forth in Justice Manzanet-Daniels's concurring writing, what I find conclusive for the determination of this appeal are the following undisputed points: (1) the liability policy issued by plaintiff QBE Insurance Corporation to defendant Jinx-Proof Inc. contained an assault-and-battery exclusion; (2) in early 2008, when QBE issued the two letters to Jinx-Proof (quoted in pertinent part by Justice Manzanet-Daniels) on which QBE now relies in disclaiming any further duty to defend or indemnify with regard to the underlying barroom incident, the negligence and Dram Shop Act claims potentially covered by the QBE policy (in addition to an assault claim within the exclusion) were still pending against Jinx-Proof [*2]in the underlying personal injury action; and (3) in April 2010, the court in the underlying action dismissed the negligence and Dram Shop Act claims, which left pending against Jinx-Proof only the assault claim clearly within the QBE policy's assault-and-battery exclusion. On these undisputed facts, QBE is entitled to a declaration that, now that all potentially covered claims in the underlying action have been dismissed, it has no further duty to defend or indemnify Jinx-Proof in that lawsuit.

I emphasize that my vote in favor of the insurer's position under the particular circumstances of this case does not mean that an insurer is generally permitted to assume the defense of a case under a purported reservation of the right to disclaim liability or deny coverage as to any claim at a later time [FN1] . Rather, in this particular case, QBE's use of the term "reservation of rights" in the letters upon which it relies should not be deemed to negate its otherwise clear and unambiguous disclaimer of coverage of claims falling within the policy's assault-and-battery exclusion because, at the time the letters were issued, QBE was, in fact, obligated to defend even claims falling within that exclusion, and had no right simply to wash its hands of such claims by issuing a disclaimer.[FN2]

To reiterate, in early 2008, when the letters on which QBE relies were issued, negligence and Dram Shop Act claims potentially covered by the subject policy were still pending against Jinx-Proof in the underlying action. In view of the broad allegations supporting those claims, it cannot be said that the pleading in the underlying action is "cast . . . solely and entirely within the [assault-and-battery] policy exclusion[], and . . . that the allegations, in toto, are subject to no other interpretation" (Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137 [2006] [internal quotation marks omitted]). Accordingly, while those negligence claims potentially within the scope of its coverage were pending, QBE was obligated to defend Jinx-Proof in the underlying action, given that an insurer's duty to defend is "broader than its duty to indemnify" (Fieldston Prop. Owners Assn., Inc. v Hermitage Ins. Co., Inc., 16 NY3d 257, 264 [2011]) and that the duty to defend "arises whenever the allegations in a complaint state a cause of action that gives rise to the reasonable possibility of recovery under the policy" (id. [internal quotation marks omitted]). Moreover, and most critically here, QBE's duty to defend, while it was in effect, extended even to claims that fell within the assault-and-battery exclusion (for which it would have no duty to indemnify). As the Court of Appeals has explained, "if any of the claims against an insured arguably arise from covered events, the insurer is required to defend the entire action" (id. [internal quotation marks omitted]), and "[i]t is immaterial that the complaint against the insured [*3]asserts additional claims which fall outside the policy's general coverage" (id. at 265 [internal quotation marks omitted]).

In view of the foregoing principles, because the complaint in the underlying action pleaded claims against the insured  potentially within the scope of QBE's coverage, QBE was obligated to defend the entire action — including claims within the scope of the assault-and-battery exclusion — until the potentially covered claims were dismissed. Thus, at the time Jinx-Proof tendered its defense to QBE, QBE had no right simply to disclaim any duty with regard to the claims falling within the scope of the exclusion. This being the case, QBE had no choice, upon tender of Jinx-Proof's defense, but to reserve its right to invoke the assault-and-battery exclusion at such future time as it might become entitled to do so.

Once the potentially covered claims were dismissed, QBE had no further obligations to Jinx-Proof with respect to the remaining claims against it, all of which fall within the exclusion, which QBE had timely invoked upon tender of the claim. Accordingly, Supreme Court correctly granted QBE's motion for summary judgment declaring its duty to defend and indemnify Jinx-Proof to be at an end. I note that we are modifying the order appealed from only to issue the declaration to which QBE is entitled.

MANZANET-DANIELS, J. (concurring)

Plaintiff, Jinx-Proof's insurer, adequately disclaimed coverage based on the policy exclusion for assault and battery. I would therefore affirm the order.
It is undisputed that the event giving rise to Hendrix's injuries and Jinx-Proof's alleged liability was an assault on the premises of the bar owned by Jinx-Proof. Hendrix instituted suit against Jinx-Proof and individuals involved in the alleged assault in December 2007. Jinx-Proof notified plaintiff of the suit on January 28, 2008. Three days later, by letter dated January 31, 2008, plaintiff's claims administrator responded:

"This company will promptly and diligently attempt to ascertain factual information to help us in establishing if this late notice has in any way handicapped our ability to investigate and defend this claim ... As soon as we can obtain the information, you will be notified of our decision.

"Furthermore, we are making this reservation of rights because your policy specifically excludes coverage for actions and proceedings to recover damages for bodily injuries arising from assault and batteries.... Consequently... QBE Insurance Company will not be defending or indemnifying you under the General Liability portion of the policy for the assault and battery allegations. Accordingly, we suggest that you consult an attorney in order to protect your interests and provide a defense for the assault and battery claim"(emphasis added).

On February, 26, 2008, plaintiff's claims administrator sent another letter to its insured, stating:

"[W]e are defending this matter under the Liquor Liability portion of the CGL coverage, and under strict reservation of rights for [*4]allegations of Assault and Battery. Your policy excludes coverage for assault and battery claims.... Therefore, should this matter proceed to verdict, any awards by the Court stemming from allegations of Assault and Battery will not be covered under your Commercial General Liability policy."

Thereafter, upon defendants' motion for partial summary judgment in the underlying action, the court dismissed Hendrix's claims against Jinx-Proof for negligent hiring, supervision and training, and violation of the Dram Shop Act. The order was never appealed.

Plaintiff, on November 15, 2010, commenced this action seeking a declaration that it was not obligated to defend or indemnify Jinx-Proof and Hendrix in the underlying action. The court granted plaintiff's motion for a declaration that it was not obligated to defend or indemnify Hendrix and Jinx-Proof, finding that "the underlying incident ... falls within the assault and battery exclusion of the insurance policy" and that the January 31, 2008 and February 26, 2008 letters served as effective written notices of disclaimer.

I would affirm. The disclaimers, issued three days and one month after receipt of notice from the insured, were timely. Moreover, the letters, taken individually and collectively, apprised the insured in no uncertain terms that coverage was barred by the assault and battery exclusion contained in the policy [FN1] . Although "reservation of rights" language may have appeared in the letters, the letters clearly state that "QBE Insurance Company will not be defending or indemnifying you under the General Liability portion of the policy for the assault and battery allegations," and "should this matter proceed to verdict, any awards by the Court stemming from allegations of Assault and Battery will not be covered under your Commercial General Liability policy." Such statements cannot be construed by a reasonable person as anything other than a disclaimer of coverage on the ground of the exclusion for assault and battery. Notwithstanding the allegedly "contradictory" language, the letters "specifically disclaimed coverage and [*5]sufficiently informed the defendants [of the basis for] the disclaimer" (see Blue Ridge Ins. Co. v Jiminez, 7 AD3d 652 [2004] [disclaimer effective notwithstanding fact that letter purported to reserve rights as well as to disclaim coverage]).[FN2]
Further, no reasonable person would have an expectation of coverage under the circumstances. Liability policies, in accordance with public policy, indemnify persons for the unexpected and unforeseen consequences of negligent acts; they do not afford coverage for intentional acts. It is not even clear, under the circumstances of this case, whether a disclaimer was necessary, given that an intentional act would not constitute an "occurrence" within the meaning of the policy. An "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general or harmful conditions." In any event, to the extent a disclaimer was necessary, the January 31, 2008 and February 26, 2008 letters sufficiently disclaimed coverage. Since no coverage exists under the policy, plaintiff is under no duty to defend or indemnify, and the order appealed from should be affirmed.

ANDRIAS, J.P. (dissenting)

I do not believe that either plaintiff-insurer's January 31, 2008 or February 26, 2008 letters, both of which plaintiff styled as a reservation of rights, may serve as an effective written notice of disclaimer of coverage of the assault and battery based claims against defendant Jinx-Proof in the underlying litigation. Therefore,

I dissent and would modify the order on appeal to deny plaintiff's motion for summary judgment and to declare that plaintiff is obligated to defend Jinx-Proof in the underlying action.

Defendant Vera Hendrix commenced the underlying action to recover for injuries she allegedly sustained on August 25, 2007, when, during an altercation in a bar, defendant Garret Alarcon, a security guard employed by Jinx-Proof, threw a glass at her face. Plaintiff initially undertook the defense of the underlying litigation pursuant to a commercial general liability (GCL) policy it issued to Jinx-Proof. In November 2010, after Hendrix's negligent hiring and supervision and Dram Shop Act claims in the underlying action were dismissed, it commenced this action seeking a declaration that it is not obligated to defend or indemnify any of the defendants on the surviving claims, based on an assault and battery exclusion contained in the policy.

A "disclaimer pursuant to [Insurance Law § ] 3420(d) is necessary when denial of [*6]coverage is based on a policy exclusion without which the claim would be covered" (Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188-189 [2000]). "[O]nce the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage, it must notify the policyholder in writing as soon as is reasonably possible" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 66 [2003]). A "[f]ailure to comply with section 3420(d) precludes denial of coverage based on a policy exclusion" (Worcester Ins. Co., 95 NY2d at 189), "even if that ground would otherwise have merit" (Adames v Nationwide Mut. Fire Ins. Co., 55 AD3d 513, 515 [2nd Dept 2008]).

Supreme Court correctly determined that the GCL policy would have provided the claimed coverage but for the assault and battery exclusion and that therefore a timely disclaimer was necessary (see Penn-America Group v Zoobar, 305 AD2d 1116 [4th Dept 2003], lv denied 100 NY2d 511 [2003]; Columbia Cas. Co. v. National Emergency Servs., 282 AD2d 346 [1st Dept 2001]). However, the court erred when it found that plaintiff's January 31, 2008 and February 26, 2008 reservation of rights letters served as effective written notices of disclaimer.

A notice of disclaimer shouldbe "unequivocal and unambiguous written notice, properly served" (Norfolk & Dedham Mut. Fire Ins. Co. v Petrizzi, 121 AD2d 276, 277 [1st Dept 1986], lv denied 68 NY2d 611 [1986]). "A reservation of rights letter may be used to rebut a claim that the carrier waived the right to disclaim by defending its insured" (New York Cent. Mut. Fire Ins. Co. v Hildreth, 40 AD3d 602, 606 [2nd Dept 2007]), but it does not qualify as a timely disclaimer and "has no relevance to the question whether the insurer has timely sent a notice of disclaimer of liability or denial of coverage" (Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1029 [1979]; see also NYAT Operating Corp. v GAN Nat'l Ins. Co., 46 AD3d 287, 288 [1st Dept 2007], lv denied 10 NY3d 715 [2008]).

By its own terms, the January 31, 2008 letter is clearly a reservation of the right to disclaim, not a disclaimer. In the letter, plaintiff advised Jinx-Proof that "[b]ased on the information presently available to us, it is possible your policy with our company may not provide coverage," and that "we are making this reservation of rights because your policy specifically excludes coverage for actions and proceedings to recover damages for bodily injuries arising from assault and batteries" (emphasis added). Thus, plaintiff did not definitively disclaim coverage, but rather reserved its right to do so.

In the February 26, 2008 letter, plaintiff confirmed that the January 31, 2008 letter was a reservation of rights, stating that "[a]s previously stated in our Reservation of right letter to you dated January 31, 2008 we are defending this matter under the Liquor Liability portion of the CGL coverage, and under strict reservation of rights for allegations of Assault and Battery." In its verified complaint, plaintiff describes the February 26, 2008 letter as a "reservation of rights letter"; this constitutes a formal judicial admission (see e.g. Performance Comercial Importadora E Exportadora Ltda v Sewa Intl. Fashions Pvt. Ltd., 79 AD3d 673, 673-674 [2010]). In addition, plaintiff's counsel's affidavit stating that plaintiff "did not issue a denial" constitutes an informal judicial admission that the letter was intended as a reservation of rights, not a disclaimer (see e.g. Matter of Union Indem. Ins. Co. of N.Y., 89 NY2d 94, 103 [1996]).

The majority believes that these admissions are immaterial and that the January 31, 2008 and February 26, 2008 letters served as effective notices of disclaimer in that they apprised Jinx-Proof in no uncertain terms that coverage was barred by the assault and battery exclusions of the policy. However, the letters are far from clear.

The January 31, 2008 letter stated that plaintiff "will not be defending or indemnifying [*7]you under the General Liability portion of the policy for the assault and battery allegations." However, it mistakenly stated that there was no liquor liability coverage under the policy and concluded that plaintiff was "reserv[ing] all rights under the policy" and that Jinx-Proof "ha[d] the right to accept or reject this Reservation of Rights agreement" (emphasis added).

The February 26, 2008 letter stated that "[y]our policy excludes coverage for assault and battery claims." However, it only advised Jinx-Proof that "should this matter proceed to verdict, any awards by the Court stemming from allegations of Assault and Battery will not be covered under your Commercial General Liability policy." It did not state that no defense would be provided, or that coverage would not exist if the matter were settled or resolved by means other than a verdict.

The February 26, 2008 letter also advised Jinx-Proof that "contrary to [the January 31, 2008] letter, your CGL policy does maintain Liquor Liability coverage with limits as stated." The letter did not detail the scope of that coverage, which is a separate coverage part and not a mere portion of the commercial liability coverage part, and did not state whether the assault and battery conclusion applied to the liquor liability coverage. Further, the February 26, 2008 letter was not sent to the injured party (see Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648-649 [3d Dept 2001]).

Accordingly, neither of plaintiff's admitted reservation of rights letters, which contain contradictory and confusing language, can be construed as an unequivocal and unambiguous disclaimer of coverage. Because plaintiff failed to timely disclaim coverage based on its policy exclusion, it should be obligated to defend Jinx-Proof, in the underlying action.

Footnotes


Footnote 1: Generally, with respect to a claim arising from death or bodily injury, a liability insurer is required to give the insured written notice of a disclaimer of liability or denial of coverage "as soon as is reasonably possible" (Insurance Law § 3420[d][2]), and the time within which to issue such a disclaimer or denial cannot be extended by reserving the right to do so in the future (see Allstate Ins. Co. v Gross, 27 NY2d 263 [1970]).

Footnote 2: QBE relies on two letters, one issued three days after it received notice of the claim from Jinx-Proof and the other issued 29 days after it received such notice. Since the first letter was clearly timely, I see no need to address the timeliness of the second letter.

Footnote 1: To the extent any negligence claims survive, they, too, arose from the assault and are subject to the assault and battery exclusion (see Metalios v Tower Ins. Co. of N.Y., 77 AD3d 471 [1st Dept 2010] [citing Mount Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347, 353 [1996] [assault and battery exclusion bars claims for negligence where no cause of action would exist "but for" an assault, and notwithstanding fact that a third party not employed by the owner of the establishment had perpetrated the assault]). The exclusion, by its terms, "applies regardless of the degree of culpability or intent," and "without regard to 1. [w]hether the acts are alleged to be by or at the instruction or at the direction of the insured, his officers, employees, agents or servants; or by any other person lawfully or otherwise on, at or near the premises owned or occupied by the insured; or by any other person; 2. [t]he alleged failure of the insured or his officers, employees, agents or servants in the hiring, supervision, retention or control of any person...; 3. [t]he alleged failure of the insured or his officers, employees, agents or servants to attempt to prevent, bar or halt any such conduct."

Footnote 2: The dissent's discussion of informal judicial omissions misses the point. As the case relied on by the dissent notes, an informal judicial omission is a "fact[] incidentally admitted during the trial or in some other judicial proceeding" (Matter of Union Indem. Ins. Co. of N.Y., 89 NY2d 94, 103 [1996] [citing Prince, Richardson on Evidence, § 8-219, at 529 [Farrell 11th ed]). Whether plaintiff's letter constituted a sufficient disclaimer is, of course, a legal question (compare Union Indem. Ins. Co., 89 NY2d at 103 [misrepresentations concerning operations and financial condition of company admissible as informal judicial admissions]; Performance Comercial Importadora E Exportadora Ltda v Sewa Intl. Fashions Pvt. Ltd., 79 AD3d 673, 673-674 [1st Dept 2010] [admission that company was agent for a party to the litigation]).